On December 3, 2012, a three-judge panel of the U.S. Court of Appeals for the Second Circuit (the Court) in United States v. Caronia decided two-to-one to vacate a misdemeanor conviction of a pharmaceutical sales representative who was found guilty of conspiracy to introduce a misbranded drug into interstate commerce in violation of the Federal Food, Drug and Cosmetic Act ( FDCA). No. 09-5006-cr, slip op. (2d Cir. Dec. 3, 2012).  The defendant had been audio-recorded during a meeting with a physician while making statements in which he was alleged to be promoting the use of a drug for unapproved indications.  Finding that the government prosecuted the defendant for his speech, the Court concluded, in an opinion written by Judge Denny Chin, that the conviction could not withstand First Amendment scrutiny.  Notably, the Court found that the government’s construction of the FDCA’s misbranding provisions as prohibiting off-label promotion does not “directly advance” the government’s stated interest in public health and drug safety, and that less restrictive alternatives are available to further such government interests.  In a robust dissenting opinion, Judge Debra A. Livingston wrote that the majority’s ruling “calls into question the very foundations of our century-old system of drug regulation.”

The Regulatory Framework

The FDCA provides that a new drug must be approved by the U.S. Food and Drug Administration (FDA) for a particular intended use before it is commercially introduced into interstate commerce.  After a new drug has been approved by the FDA, however, physicians generally have the ability to prescribe the drug for uses that are not FDA-approved.  Indeed, in the practice of medicine, physicians frequently prescribe drugs for such unapproved, or “off-label,” uses.  Notwithstanding the flexibility granted to health care providers, the FDA has long restricted the ability of pharmaceutical manufacturers and their representatives to discuss off-label uses of drugs with health care providers.

Specifically, the FDCA provides that a drug is deemed “misbranded” under certain circumstances, including if its labeling fails to bear “adequate directions for use.”  FDA regulations define “adequate directions for use” as “directions under which the layman can use a drug safely and for the purposes for which it is intended.”  To determine the “intended use” of a drug, the FDA’s regulations permit the FDA to look to the drug manufacturer’s so-called “objective intent,” which may be shown by “oral or written statements” by the manufacturer or its representatives, and by demonstrating that the drug was, with the manufacturer’s or its representatives’ knowledge, “offered and used for a purpose for which [the drug] is neither labeled nor advertised.”  Thus, under the FDA’s regulations, off-label promotional statements may constitute evidence of a drug’s intended use.

Significantly, as the Court notes in its opinion, the FDCA and FDA regulations “do not expressly prohibit the ‘promotion’ or ‘marketing’ of drugs for off-label use.”  Nonetheless, the FDA has for many years asserted that pharmaceutical manufacturers are permitted to address off-label uses only under only limited circumstances, as described in evolving FDA regulatory guidance.   (See, e.g., Food & Drug Admin., Guidance for Industry: Responding to Unsolicited Requests for Off-Label Information About Prescription Drugs and Medical Devices – DRAFT GUIDANCE (Dec. 2011); Food & Drug Admin., Guidance for Industry: Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices (Jan. 2009).)  In addition, the federal government has long taken the position that off-label promotion is, in itself, misbranding, and has on numerous occasions obtained the conviction of manufacturers and their representatives for misbranding, or negotiated sizeable civil settlements under the False Claims Act, based on off-label promotional statements.

Factual and Procedural Background

The defendant in the case, Alfred Caronia, was a sales representative for Orphan Medical Inc. (now a wholly-owned subsidiary of Jazz Pharmaceuticals).  Orphan manufactured a drug called Xyrem® that was first approved by the FDA to treat narcolepsy patients with cataplexy, a temporary condition associated with narcolepsy that is characterized by muscular weakness or paralysis.  To promote Xyrem®, Orphan used so-called “speaker programs,” through which physicians who were paid fees by the company would speak to other physicians regarding the benefits of Xyrem® in treating FDA-approved indications.  Orphan’s policies prohibited Caronia, as a sales representative, from answering any questions regarding the “off-label” use of Xyrem®.  Orphan’s physician speakers, however, were permitted to respond to such questions.

In early 2005, the federal government began to investigate Orphan and Dr. Peter Gleason, a physician Orphan hired to promote Xyrem® through the speaker programs.  The government audio-recorded two meetings that Caronia and/or Gleason held with a physician posing as a potential customer, during which Caronia and Gleason each made statements promoting Xyrem® for unapproved indications.  One of the indications for which Caronia was found to have promoted Xyrem® off-label was “excessive daytime sleepiness,” which the FDA approved as a use for Xyrem® less than one month after the statements were made.  A grand jury subsequently charged Caronia with two misdemeanor offenses: (1) “Conspiracy to introduce a misbranded drug into interstate commerce in violation of 21 U.S.C. §§ 331(a) and 333(a)(2),” and (2) “Introducing a misbranded drug, Xyrem, into interstate commerce, in violation of 21 U.S.C. §§ 331(a) and 333(a)(2).”  Orphan and Gleason, who were also charged under the FDCA’s misbranding provisions, each pled guilty.

Caronia moved to dismiss the charges, arguing that the application of the FDCA’s misbranding provisions to his statements violated his First Amendment right to free speech and that the misbranding provisions were unconstitutionally vague and broad.  The district court denied the motion, finding that although the government was prosecuting Caronia for his speech, the FDCA, insofar as it criminalizes speech, passed the intermediate scrutiny that applies to restrictions of commercial speech because the restriction was not broader than necessary to further the government’s interests.  A jury subsequently convicted Caronia of conspiracy to introduce a misbranded drug into interstate commerce, and Caronia appealed, arguing that his conviction for truthful off-label promotion of an FDA-approved drug violated the First Amendment.

The Court’s Decision

The Role of Caronia’s Promotional Speech in His Prosecution

On appeal, the Court majority first addressed whether Caronia’s promotion of off-label use of Xyrem® was used only as evidence of intended use of the drug product, or whether it constituted the basis of the government’s criminal prosecution of Caronia for off-label promotion.  The government argued—as did Judge Livingston in her dissenting opinion—that Caronia’s promotional speech served only as evidence that the “off-label uses were intended ones [] for which Xyrem’s labeling” was inadequate.  Citing the government’s arguments during trial, the Court found that the trial record “confirms overwhelmingly that Caronia was, in fact, prosecuted and convicted for promoting Xyrem off-label.”  It noted that “[t]he government never argued in summation or rebuttal that the promotion was evidence of intent,” and “never suggested that Caronia engaged in any form of misbranding other than [off-label] promotion,” such as acting to “place false or deficient labeling on a drug.”  Concluding that Caronia was indeed prosecuted for his speech, the Court next addressed whether such prosecution was permissible under the First Amendment to the U.S. Constitution.

First Amendment Analysis

The Court noted that although the statutory definition of misbranding rests upon “whether a drug’s labeling is adequate for its intended use,” the government’s construction of the FDCA’s misbranding provisions is that off-label promotion is itself prohibited and criminalized under the FDCA’s misbranding provisions.  In order “to avoid a serious constitutional question” under the principal of “constitutional avoidance,” the Court declined “to construe the FDCA’s misbranding provisions to criminalize the simple promotion of a drug’s off-label use by pharmaceutical manufacturers and their representatives….”

In its First Amendment analysis, the Court first determined the level of scrutiny to which the speech restriction should be subjected.  It referred to the recently decided Sorrell v. IMS Health, Inc., in which the Supreme Court of the United States found unconstitutional, on First Amendment grounds, a controversial Vermont law that prohibited pharmaceutical manufacturers and pharmaceutical marketers from using prescriber-identifiable information for marketing purposes.  131 S. Ct. 2653 (2011).  In Sorrell, the Supreme Court held that “[s]peech in aid of pharmaceutical marketing … is a form of expression protected by the First Amendment,” and that the Vermont law, which “disfavored speech with a particular content (marketing) when expressed by certain disfavored speakers (pharmaceutical manufacturers) … unconstitutionally restricted speech.”

The Court adopted the two-step analysis used by the Supreme Court in Sorrell.  First, the Court considered whether the promotional speech restriction applied by the government was content- and speaker-based (in which case it would be subject to heightened scrutiny and “presumptively invalid”).  The Court determined that the government’s interpretation of the FDCA’s misbranding provisions as prohibiting off-label promotion by pharmaceutical manufacturers was both.  Specifically, the government’s application of the misbranding provisions permits “speech about the government-approved use of drugs” while prohibiting “certain speech about the off-label use of drugs,” and “targets one kind of speaker—pharmaceutical manufacturers—while allowing others to speak without restriction.”  As a result, the Court found that the government’s construction of the FDCA’s misbranding provisions is subject to heightened scrutiny—particularly because, unlike in Sorrell, it involves a criminal regulatory scheme that warrants even more careful scrutiny.

Second, the Court determined whether the speech restriction was consistent with the First Amendment using a four-part test that the Sorrell Court adopted from an 1980 Supreme Court decision, Central Hudson Gas & Electric Corporation v. Public Service Commission of N.Y., 447 U.S. 557, 563-64 (1980).  The first prong provides that, “to warrant First Amendment protection, the speech in question must not be misleading and must concern lawful activity.”  Second, “the asserted government interest must be substantial” in order to support the speech restriction.  Third, the restriction “must directly advance the governmental interest asserted.”  Finally, the restriction “must be ‘narrowly drawn,’ and may not be more extensive than necessary to serve the interest … .”

The Court found the first two prongs of the Central Hudson test to be “easily satisfied.”  First, the speech concerns off-label drug use—a lawful activity—and off-label promotional speech “is not in and of itself false or misleading.”  Second, the government’s asserted interest “in preserving the effectiveness and integrity of the FDCA’s drug approval process, and … in reducing patient exposure to unsafe and ineffective drugs” is substantial.

The government’s construction of the FDCA’s misbranding provisions, however, did not meet the third and fourth prongs of the Central Hudson test, according to the Court.  With regard to whether the restriction “directly advances” the government’s asserted interest, the Court noted that prohibiting pharmaceutical manufacturers and their representatives from promoting off-label use “‘paternalistically’ interferes with the ability of physicians and patients to receive potentially relevant treatment information … .”  The Court stated that “[i]f the government’s objective is to shepherd physicians to prescribe drugs only on-label, criminalizing manufacturer promotion of off-label use while permitting others to promote such use to physicians is an indirect and questionably effective means to achieve that goal.”  The Court thus concluded that “the government’s construction of the FDCA’s misbranding provisions does not directly advance its interest in reducing patient exposure to off-label drugs or in preserving the efficacy of the FDA drug approval process because the off-label use of such drugs continues to be generally lawful.”  In the dissent, Judge Livingston asserted that the “direct advancement” prong was satisfied, noting that if manufacturers—the very group required to participate in the drug approval process—were permitted to promote drugs off-label, they would lack the incentive to seek FDA approval for such uses.

With regard to whether the restriction is “narrowly drawn” to serve the government’s interest, the Court noted that there are “[n]umerous, less speech-restrictive alternatives” to criminalizing off-label promotion by pharmaceutical manufacturers and their representatives.  The Court offered examples such as non-criminal penalties, providing guidance to physicians and patients on how to identify false and misleading information, imposing limits on off-label prescriptions and prohibiting off-label use in particularly compelling situations.  Finding that the government’s interest in drug safety and public health “could be served equally well by more limited and targeted restrictions on speech,” the Court concluded that the government’s construction of the FDCA’s misbranding provisions unconstitutionally restricts free speech in violation of the First Amendment, and vacated Caronia’s conviction.

Implications for Industry and the Government’s Enforcement Strategies

At this time, the full impact of the Court’s decision remains to be seen, as the government may seek a re-hearing by the full Court en banc (and perhaps, eventually, petition the Supreme Court), and the decision is currently binding only within the Second Circuit.  In addition, by its terms, the Court’s ruling does not apply to prosecutions under the FDCA for false and misleading statements promoting the off-label use of the drug (i.e., such speech would not receive First Amendment protection).

Nonetheless, the decision is a significant setback for the FDA and federal government, which have long relied on off-label promotion as the basis on which the government and qui tam relators have achieved substantial monetary settlements and corporate integrity agreements under the False Claims Act.  In the near or intermediate term, it remains to be seen whether the decision leads the FDA to revisit the breadth of its post-market regulatory and enforcement activities and refocus on false and misleading promotion activities that raise significant safety concerns.  Likewise, the impact of the decision on the government’s application of the False Claims Act to promotional activities also remains to be seen, although there is likely to be robust debate on the willingness of companies to settle for millions of dollars, or of corporate executives to plead guilty to strict liability misdemeanor offenses under the FDCA, relating to truthful, off-label promotion.

In the event the Court’s decision is upheld and/or broadened to other circuits, the FDA would also need to reconsider and revise its current guidance and regulatory approach with regard to how manufacturers may discuss off-label uses of FDA-approved products.  Finally, in ruling that truthful, non-misleading off-label promotion of FDA-approved drugs is not prohibited by the FDCA’s misbranding provisions, the Court also opens the door to a number of questions.  For instance, it remains to be seen what constitutes false and misleading off-label promotion, which, under the Court’s application of the Central Hudson test, is not protected by the First Amendment.  Additionally, the Court left open the possibility that off-label promotional statements could still be used as evidence of intended use in determining whether a drug had adequate directions for use. 

While the Court’s decision is significant, as this and other courts evaluate its meaning and impact, and as the practical implications of the decision develop over time, pharmaceutical, medical device and biotechnology manufacturers should continue to proceed carefully in their promotional practices and activities.