Off-Label Marketing Opinion Sends Warning to Pharmaceutical Companies

“The Ninth Circuit has reopened a door for off-label marketing prosecutions, and it is important to review your compliance and risk management programs in light of this recent decision.” (Sheppard Mullin)

Earlier this month, the Ninth Circuit issued an opinion that sends an important warning to pharmaceutical manufacturers: the First Amendment doesn’t protect off-label marketing that is false or misleading.

The background, from King & Spalding:

“In 2009, a jury convicted Scott Harkonen, the former Chief Executive Officer of InterMune, Inc., of wire fraud based on a press release that contained allegedly false and misleading statements… In his defense, Harkonen argued that the press release ‘expressed a scientific view’ protected by the First Amendment, while the government contended that false statements made with an intent to defraud the public were not protected by the First Amendment. The District Court in the Northern District of California sentenced Harkonen to three years’ probation, six months of home confinement, 200 hours of community service, and a $20,000 fine.”

Harkonen appealed his conviction to the Ninth Circuit, claiming (among other things) that his speech may have been misleading, but it wasn’t fraudulent and as such was protected by the Constitution. For the court, however, the First Amendment didn’t even come into play. Again, King & Spalding:

“Because First Amendment protections do not extend to fraudulent speech, the [appeals] court assessed whether the jury’s factual findings established that the press release was fraudulent. The court concluded that the evidence at trial supported a finding that it was, reasoning that there was sufficient evidence to show the press release misrepresented the results of clinical analyses of Actimmune; Harkonen knew the press release was misleading; the press release was capable of influencing a doctor’s decision to prescribe; and Harkonen had the specific intent to defraud (i.e., to boost sales of the drug).”

This latest ruling – the third significant off-label marketing decision in recent months – calls for extra caution, explains David Douglass at law firm Sheppard Mullin:

“The Ninth Circuit’s approach will have a chilling effect on speech because any promotional activity will be vulnerable to prosecution for being criminally deceitful, misleading or even tricky. Apart from the risk of conviction, there is the chilling effect of the spectre of criminal investigation that can form an expensive, prolonged and potentially debilitating cloud over an individual’s life and career.”

Three takeaways for pharmaceutical manufacturers:

1. Stretching the truth could lead to conviction:

“[T]he term ‘to defraud’ is broadly construed and could open a company or employee to a federal prosecution if an overzealous prosecutor seeks to hold that a literally true statement is, nonetheless, deceptive or overreaching. Vulnerability to this type of prosecution only reinforces the need for companies to draft their promotional materials with great care, and to train and monitor the sales staff in an attempt to ensure that the dialogue with the medical care professionals or the consumers is not in any way misleading or overreaching.” (Lane Powell)

2. Defending allegations of fraud could get very complex:

“This could be the beginning of a species of … cases involving allegedly misleading statements about the results of clinical trials, where a court and jury are called upon to decide whether a company’s interpretation of its clinical data was a defensible reading of a statistically ambiguous result, or whether its reading was so off the mark it should be considered evidence of the company’s fraudulent intent. The Ninth Circuit panel that decided Harkonen seemed comfortable with having a jury decide these difficult, and potentially confusing scientific issues despite their complexity… In thinking about how to defend these actions in the future, companies will need to be in a position to defend the scientific and clinical bases for their public statements when confronted with the level of scrutiny InterMune faced in this case.” (Dechert)

3. The best defense is a good compliance policy:

“Strong compliance policies developed and implemented to ensure to the extent possible that promotional activities, especially the activities and statements of the sales force, are truthful, controlled and carefully monitored will not only limit exposure to investigation and prosecution but can also create the record to persuade a prosecutor that prosecution is unwarranted.” (Sheppard Mullin)

The updates:

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