Court Again Rejects Alleged ‘Fraud on the FDA’ Theory of Implied Certification Liability

By on June 22, 2015
Posted In Pharmaceuticals

On June 12, 2015, the U.S. District Court for the Northern District of California granted Gilead Science’s second motion to dismiss Relators’ False Claims Act (FCA) claims premised on Gilead’s alleged failure to obtain timely supplemental approval from the U.S. Food and Drug Administration (FDA) for use of a new unapproved manufacturing source. See U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-cv-00941 (N.D. Cal. June 12, 2015). In doing so, the court reiterated its unwillingness to allow an FCA claim “to be based on misrepresentations and omissions made to the FDA during the FDA approval process.” The court’s reasoning is noteworthy not only for FCA cases premised on alleged violations of FDA regulations, but for a much broader range of FCA claims based on alleged regulatory non-compliance.

In 2011, Relators filed an FCA action based on various alleged violations by Gilead of the FDA’s Current Good Manufacturing Practices requirements. The government declined to intervene. The court dismissed Relators’ first amended complaint (FAC) in its entirety in January of 2015 in part because Gilead’s alleged fraud in obtaining FDA approval “did not negate the fact that the condition for payment—approval by the FDA—had in fact been obtained.” Relators’ second amended complaint (SAC) largely reiterated the already-rejected factual allegations of the FAC, and more specifically alleged that “even though Gilead got approval through the NDA [new drug application] process for the drugs in question, there was, subsequently, a major change to the drug products which, under the FDCA [Federal Food, Drug, and Cosmetic Act] required Gilead to submit a PAS [prior approval supplement] to the FDA to obtain new approval for the changes. . . The major change that Relators point[ed] to concerned Gilead’s use of an unapproved manufacturing source: Synthetics China.” Relators argued that “because of Gilead’s failure to get supplemental approval…the drug products were not approved drugs under the FDCA, and therefore the drug products were not eligible for payment under the government payment programs.”

The court rejected this argument and concluded that Relators again failed to plead an implied false certification claim under the FCA, because they “failed to cite to, e.g., a statute, rule or regulation that makes payment conditioned on supplemental approval by the FDA (as opposed to NDA approval).” The court emphasized that “the statute makes clear that such payment is conditioned on NDA approval, not PAS approval.”

The court again noted that from a policy perspective it would be “problematic” to permit an FCA cause of action based on a fraud-on-the-FDA theory:

[W]ere the FCA [False Claims Act] construed to allow an FCA claim to be based on misrepresentation and omissions made to the FDA during the FDA approval process, the Court sitting on an FCA case would have to delve deeply into the complexities, subtleties and variabilities of the FDA approval process . . . [T]he Court would be tasked not only with determining whether a falsity was presented to the FDA, but also predicting the institutional response of the FDA and the ultimate outcome of a specialized and complex administrative proceeding…The Court is ill-equipped to make that kind of prediction. Such an inquiry stands in contrast to the inquiry in a more typical FCA case – determining whether a particular statement or certification made to the payor agency is in fact false and material to the decision to pay. Absent a clear directive from Congress, the Court is unwilling to read into the FCA such an expansive sweep.

This decision is important for any implied certification case involving violation of a regulation promulgated by an agency other than a government payor. Regulatory non-compliance can lead to a number of consequences, but if it does not violate a condition of payment, there can be no FCA liability.

The case was dismissed with prejudice, though Relator’s counsel has said she plans on appealing the dismissal. We will continue to monitor any developments in this case.

Dana McSherry
Dana McSherry represents clients in health care, securities and other government enforcement matters, both civil and criminal. Dana also assists clients in conducting internal investigations and counsels clients across the health care industry on compliance and risk management issues. Read Dana McSherry's full bio.