Antitrust Law Daily Wrap Up, ADVERTISING—E.D. Pa.: Third-party payors state claims based on allegedly deceptive marketing scheme of diabetes drug Avandia, (Oct 25, 2013)

By Jody Coultas, J.D.

Third-party payors (TPPs) stated Racketeer Influenced and Corrupt Organizations Act (RICO) and state law consumer protection claims against GlaxoSmithKline LLC (GSK) for allegedly misrepresenting and concealing the safety of its diabetes drug, the federal district court in Philadelphia has held (In Re: Avandia Marketing, Sales Practices and Products Liability Litigation, October 22, 2013, Rufe, C.).

GSK produces, markets, and distributes oral medications to treat Type II diabetes mellitus under the brand names Avandia, Avandamet, and Avandaryl. The TPPs included Avandia on their approved drug list, sometimes at a higher preference level than competing drugs, and covered Avandia prescriptions at the favorable, formulary rate. GSK was aware of, and the FDA has been monitoring, clinical trials and reports of heart-related adverse events associated with Avandia use. The TPPs alleged that GSK knowingly made false statements and concealed negative information regarding Avandia’s cardiovascular risks.

RICO. The TPPs had standing to assert the RICO claims, according to the court. To have standing to state a RICO claim, the plaintiffs must establish that an injury to business or property occurred and that the injury was caused by GSK’s violations of 18 U.S.C. § 1962. They alleged that GSK misled the public and TPPs about the safety of Avandia, and the TPPs would have covered a less expensive drug had GSK produced the misleading statements. The injury was unaffected by whether anyone actually fell ill due to Avandia, and the intervening acts of physician prescribers were not independent and unforeseeable to GSK. The TPPs also submitted factual allegations which, if proved, would support a finding that GSK deliberately concealed Avandia’s cardiovascular risk, as well as issuing affirmatively misleading statements, and those actions influenced the TPPs’ decision to cover Avandia. The court outlined the chain of causation as: (1) GSK distributed misinformation about Avandia; (2) TPPs relied upon that misinformation and placed Avandia on their formularies; (3) physicians relied upon that misinformation and prescribed the drug; and (4) TPPs paid for an excess number of prescriptions for that drug.

The TPPs stated a RICO claim against GSK under § 1962(c), according to the court. To state a RICO claim under § 1962(c), the TPPs were required to allege that: (1) an enterprise that engaged in interstate commerce existed; (2) GSK was associated with that enterprise; (3) GSK participated in the affairs of the enterprise; and (4) GSK participated in a pattern of racketeering activity. The TPPs alleged that GSK acted on its own and with non-employees in its efforts to mislead the public, and engaged in the predicate racketeering activities of mail fraud, wire fraud, use of interstate facilities to conduct unlawful conduct, and witness tampering. To support its claim of mail fraud, the TPPs alleged that GSK pressured a doctor to retract his statements concerning the safety of Avandia in a letter. GSK also allegedly sent a letter to the editor of European Heart Journal, urging him not to publish an editorial on the cardiovascular risks of Avandia. This scheme to suppress scientific research on Avandia also allegedly included the issuance of press releases, televised advertisements, and the nationwide distribution of marketing materials to prescribing doctors and TPPs, all involving the use of the mail and interstate wires. The allegations were sufficient to state a mail fraud RICO claim.

There was also sufficient evidence to support the TPPs’ witness tampering claims, according to the court. The TPPs alleged that GSK intimidated certain scientists to prevent them from publishing research which might reveal the true risks of Avandia use. The FDA, a government agency, was engaged in continuing oversight of Avandia, which included periodic reviews and proceedings regarding the safety and efficacy of Avandia. Therefore, if GSK intimidated those scientists to suppress their research on the risks of Avandia, the TPPs may be able to establish that the intimidation did interfere with FDA proceedings.

State unfair competition claims. Each TPP had standing to sue only under the consumer protection act of the state in which the TPP was located, according to the court. Thus, Allied Services may raise claims under the law of Illinois, UFCW may bring claims under the laws of Pennsylvania, and United Benefit Funds may assert claims under the laws of New York.

The court finds that UCFW adequately stated a claim under Pennsylvania law. UFCW alleged that GSK deliberately concealed information about the increased cardiovascular risks associated with Avandia use, and provided misinformation about its safety, knowing that the information it provided would be considered by the TPPs and the pharmacy benefit managers (PBMs) they work with as they determined whether they would cover the costs of Avandia for their members. The allegations were sufficient to state a claim.

Allied Services stated a consumer protection claim, according to the court. To state a claim under the Illinois Consumer Fraud Act, Allied Services must allege that (1) GSK engaged in an unfair and/or deceptive act or practice; (2) GSK intended TPPs to rely on that act or practice; (3) the act or practice impacted on trade or commerce; and (4) the act or practice was the proximate cause of an actual injury to the TPPs. Allied Services sufficiently alleged that GSK engaged in deceptive practices, and that GSK intended the TPPs to rely on those practices.

The court found that the allegations of proximate causation were adequate under New York law. To state a claim under New York’s Consumer Protection Act, a plaintiff must allege “that the defendant engaged in a material deceptive act or practice that caused actual … harm.” While the plaintiff need not allege justifiable reliance, it must plead that the deceptive act or practice was the cause of the alleged harm. The TPPs sufficiently stated a deceptive practice and causation.

The case is No. AVANDIA MDL 1871 07-MD-01871.

Attorneys: Arnold Levin (Levin Fishbein Sedran & Berman) for Allied Services Division Welfare Fund. David Baylis Franco (The Dugan Law Firm) for UFCW Local 1776 and Participating Employers Health and Welfare Fund. Halley Finkelstein Ascher (Finkelstein Thompson LLP) for United Benefit Fund. Anthony Vale (Pepper Hamilton LLP) for GlaxoSmithKline LLC.

Companies: GlaxoSmithKline LLC; Allied Services Division Welfare Fund; UFCW Local 1776 and Participating Employers Health and Welfare Fund; United Benefit Fund

Cases: Advertising StateUnfairTradePractices RICO PennsylvaniaNews