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A tip of the old cyberhat – and not for the first time – to Alan Modlinger at Lowenstein Sandler for passing along to us the latest good news on the off-label promotion front – dismissal (with leave to replead under Twombly) in In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, slip op. (D.N.J. July 10, 2009). It’s a whopper – 72 pages.
Despite the name, there aren’t really many “consumers” in the case – mostly a bunch of third-party payers (TPPs) with their hands out. It’s the usual piggy back (“filed on the heels of” slip op. at 21), on an FDA prosecution for off-label promotion. The damages allegations, as well, are what we’ve come to expect: a fraud on the market type theory that somehow the off-label promotion increased the overall price of the drug – even though the drug’s price for on- and off-label uses was the same. There’s also the standard TPP claim that they paid for illegally induced off-label uses – even though for a lot of people the drugs were effective and didn’t cause any adverse effects.
No personal injuries, of course. Just RICO (federal and state), consumer fraud, unjust enrichment, civil conspiracy, fraud, negligent misrepresentation, and a couple of weird claims – “aiding and abetting breach of fiduciary duty” and “equitable accounting” based upon “illicit marketing.” Slip op. at 2.
We aren’t going to go into the facts because – well this opinion is 72 pages long and we have other work to do.
So we’ll go straight to the bottom line. Here are the important legal rulings:
This is another example of how the courts are not letting plaintiffs get away with boilerplate pleading after Twombly. The opinion’s standard of review section is essentially all about Twombly. Slip op. at 11-12. That is, except when fraud is involved.
Dismissal of the RICO claims (both federal and state, because plaintiffs pleaded the same supposed facts for both) is for the familiar ground the the plaintiffs have not plead standing to sue/cognizable injury.
The court discerned four claims in the plaintiffs’ complaint: (1) economic loss due to off-label promotion; (2) the same sort of loss due to paying for prescriptions for ineffective drugs; (3) yet more economic loss because the TPPs were induced to pay for the drugs when there were cheaper alternatives; and (4) still more economic loss due to paying for more prescriptions and alleged price inflation due to increased demand (this is the fraud on the market theory). Slip op. at 17.
All bogus, ruled the court.
Number 1: Illegal promotion in and of itself isn’t something private plaintiffs have standing to sue about. “[T]his theory of injury – injury based solely on the off-label promotion of the [drugs] – is patently illogical and untenable. Slip op. at 19. Why? It would allow recovery where: (1) the off-label promotion was entirely truthful, and (2) when the off-label use was the most effective treatment. Id. This theory is “plainly an impermissible attempt … to turn violations of the FDCA for off-label promotion into a private cause of action.” Id. Off-label promotion is not inherently fraudulent. Slip op. at 20. Instead, where the off-label use was effective, the plaintiffs received the benefit of their bargain and were not injured at all. Id. “The court will not permit Plaintiffs to shoehorn allegations of off-label promotion within the rubric of RICO without pleading the essential RICO elements of injury and causation.” Slip op. at 21. Bye-bye off-label use theory.

Agreed 100%. For more of our take on these issues, in the RICO context specifically, see here and here.
Number 2: It’s hard to argue a loss from allegedly “ineffective” drugs when there aren’t any facts pleaded that plausibly establish the ineffectiveness of the alleged off-label uses. Slip op. at 22. And the kicker: to the extent the TPP plaintiffs allege ineffectiveness, they never tie those allegations to any particular prescription that they paid for. Slip op. at 28-29 (failure to identify who received an ineffective drug). That’s the kicker because it’s harder for plaintiffs to plead around it – and by its nature it would defeat any kind of class recovery. “[F]ormulaic recitation of of the statutory RICO elements” doesn’t cut it anymore. Id. at 23 (citing Iqbal). Pleading injury “requires proof of a concrete financial loss,” not “mere injury to a valuable intangible property interest.” Id. “Not FDA approved and/or ineffective” doesn’t adequately plead actual ineffectiveness. Slip op. at 24. Lack of FDA approval does not establish ineffectiveness. Id. Nor does mere lack of evidence. Slip op. at 25-26.

Plaintiffs’ allegations of insufficient evidence and lack of FDA approval are not adequate to plead RICO injury because they fail to assert that the [drugs] were ineffective, unsafe, or somehow worth less than what Plaintiffs paid for the drugs…. [T]here is a clear and decisive difference between allegations that actually contest the safety or effectiveness of [the drugs] and claims that merely recite violations of the FDCA, for which there is no private right of action.

Slip op. at 26. Off-label promotion is “puffery” – not fraud. Id. at 26-27.
To plead injury, plaintiffs would have to plead what actually happened to them – to the beneficiaries they claim they covered. Slip op. at 29-30. “The Complaint simply does not allege that the [drugs] were ineffective, never mind that that the drugs were ineffective for the off-label uses for which they were purchased by [plaintiffs].” Slip op. at 31.
All this means that plaintiffs must plead ineffectiveness affirmatively. See Slip op. at 27. They won’t be able to do that, of course, because any large-scale off-label use has to be effective, at least in a significant number of patients – otherwise doctors wouldn’t have used the drug in that manner in the first place. In short, the only off-label uses involving enough bucks to sue over have to be effective in some populations. Ineffectiveness is not a plausible theory.
Number 3: An alleged lower-priced alternative is not a viable form of loss where plaintiffs received the drug they bargained for, since “the value of the product that was actually purchased was not diminished.” Slip op. at 35. There is no allegation in the complaint that the TPPs were themselves misled, only that prescribing doctors supposedly were. Slip op. at 36. Plaintiffs “failed to adequately plead that any particular consumers or TPP beneficiaries received inadequate or inferior drugs or even worse suffered personal injuries.” Slip op. at 38 (citation and quotation marks omitted). See Slip op. at 41 (rejecting argument that off-label uses are “a fortiori not as effective or safe as approved treatments”).
And the second point in number 2 applies here as well – failure to plead existence of an equally effective, lower priced alternative with respect to any actual individual situations (not even as to the only rare individual plaintiff). Slip op. at 39-40.
Thus, unless the drug in question was affirmatively inferior in some way, there is no RICO injury for the mere existence of a cheaper road not taken (apologies to Robert Frost).
Number 4: Price inflation “is a classic fraud-on-the market theory” that has been “resoundingly rejected.” Slip op. at 42-43.
Other grounds for dismissal:
Plaintiffs’ off-label marketing allegations also fail because they inadequately plead causation. “[I]ndividualized inquiry would require the factfinder to determine which off-label prescriptions were written by doctors (and ultimately paid for by plaintiffs) as a direct result of [defendant’s] alleged misconduct.” Slip op. at 49. Nothing in the complaint even purported to plead any facts of this nature. Slip op. at 51-52 (pleadings “ignore reality”; are “full of holes”). The presence of independent prescribing doctors cuts off causation for reasons of remoteness. Slip op. at 50.
The racketeering allegations – predicated on alleged fraud – are not pleaded with the specificity required under Rule 9(b). Slip op. at 54. No particular communications to the plaintiffs themselves, or to particular doctors or patients, are alleged. Other predicate acts are not causally connected to the plaintiffs. Slip op. at 54-55.
A drug manufacturer’s sales subsidiary isn’t an independent entity capable of combining with its parent in a RICO “enterprise.” Slip op. at 56-59.
A promotional program that is not a natural person or legal entity can’t be part of an “association in fact” under RICO. Slip op. at 61-62.
The New Jersey consumer fraud act does not permit fraud-on-the-market theories, slip op. at 63, and plaintiffs allege no other loss theory.
TPPs are not “consumers” for purposes of the New Jersey consumer fraud act, since they do not purchase drugs for their own consumption. Slip op. at 64-66.
Common-law fraud and misrepresentation are not adequately pleaded, for reasons previously discussed. Slip op. at 66-67. Nor is there any allegation that the plaintiff TPPs were intended recipients of any fraudulent statement. Slip op. at 67.
Unjust enrichment and equitable accounting fail for lack of ascertainable loss and remoteness of causation, as previously discussed. Slip op. at 68-69.
Since plaintiffs cannot privately claim illegal off-label promotion, they can’t use it to sustain a civil conspiracy claim either. Slip op. at 70.
No facts are pleaded connecting the defendant with any particular doctor, so fiduciary duty claims are insufficiently pleaded. Slip op. at 70-71.
Finally, plaintiffs may replead, but any amendment “should not rely upon allegations that Defendants engaged in the off-label promotion of the [drugs].” Slip op. at 72.