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Concordia Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC

United States District Court, W.D. Virginia, Charlottesville Division

March 2, 2017

CONCORDIA PHARMACEUTICALS, INC., Plaintiff,
v.
METHOD PHARMACEUTICALS, LLC, et al., Defendants.

          MEMORANDUM OPINION

          Hon. Glen E. Conrad Chief United States District Judge

         On the fourth day of a bifurcated trial, a jury returned a verdict in favor of the plaintiff, Concordia Pharmaceuticals, Inc. ("Concordia"), on its claim that the defendants, Method Pharmaceuticals, LLC ("Defendant Method") and Matthew Scott Tucker ("Defendant Tucker, and collectively, "Method"), engaged in false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). In the subsequent damages phase of trial, the jury found that Concordia was entitled to $733, 200.00 in actual or compensatory damages. However, the jury also found that Method's false advertising was not willful. Concordia subsequently filed a motion for judgment as a matter of law or a new trial on the issue of willfulness, a motion for enhanced damages and prejudgment interest, and a motion for attorneys' fees and litigation costs. This memorandum opinion sets forth the court's rulings on Concordia's motions.

         Background

         In May of 2014, Concordia acquired the Donnatal® line of products ("Donnatal") from PBM Pharmaceuticals, Inc. ("PBM"). Donnatal is a line of combination phenobarbital and belladonna alkaloid ("PBA") products that is used as adjunctive therapy in the treatment of irritable bowel syndrome and acute enterocolitis. Donnatal is available by prescription in the form of a tablet and an elixir.

         Donnatal was first introduced in the 1930s, before drug manufacturers were required to prove that drugs were both safe and effective in order to obtain approval by the Food and Drug Administration ("FDA"). Although Donnatal products have been approved for safety, the FDA has yet to determine their effectiveness.

         For many years, Donnatal faced competition from generic PBA products that were pharmaceutically equivalent to Donnatal. In 2011, manufacturers of the generic versions began to take their products off the market. Once the inventories of previously manufactured generic products were eliminated, Donnatal was the only line of PBA products available for prescription.

         Defendant Method is a wholesale drug distribution company based in Arlington, Texas. The company was founded by Defendant Tucker in 2012 and he is the sole owner. During the time period at issue, Christopher Boone served as the company's vice president of operations.

         Method sells approximately thirty pharmaceutical products that are manufactured for the company by contract manufacturing organizations. Rather than employing a sales force, Method utilizes pharmaceutical databases to promote its products. Method's admitted business strategy is to ensure that its products are "linked" to existing drugs in the databases, which are used by members of the pharmaceutical industry to determine whether generic substitutes are available for brand name products. See Tr. of Trial Testimony of Matthew Scott Tucker ("Tucker Tr.") at 5, Docket No. 229 ("[M]y business model is to sell any product that we have. Link[ing] would be the way we do that.").

         In 2013, Method began making plans to market a new product that would be pharmaceutically equivalent to Donnatal. The new product was eventually named Me-PB-Hyos. Method contacted Winder Laboratories, LLC ("Winder") and expressed an interest in having Winder manufacture the new product. In December of 2013, Method issued a purchase order for initial stability testing. However, Winder never performed the stability testing necessary to develop Me-PB-Hyos, and no finished product was manufactured by Winder or any other manufacturer.

         Nonetheless, in March of 2014, Method moved forward with its plans to market Me-PB-Hyos as a generic alternative to Donnatal. Method used the product labels and package inserts for Donnatal tablets and elixir to create labels and inserts for Me-PB-Hyos tablets and elixir. Method then proceeded to list the nonexistent Me-PB-Hyos products with two of the major pharmaceutical databases, Medi-Span and First Databank.

         On March 31, 2014, Method submitted the Me-PB-Hyos product labels, along with new product submission forms, to Medi-Span. As part of its efforts to have Me-PB-Hyos linked to Donnatal in the Medi-Span database, Method listed Donnatal's National Drug Code ("NDC") as the Reference NDC. See Tr. of Trial Testimony of Christopher Boone ("Boone Tr.") at 27, Docket No. 228 (acknowledging that Method identified Donnatal as the reference drug for Me-PB-Hyos for the purpose of having Me-PB-Hyos listed as its "generic[] equivalent"); see also Tr. of Trial - Day Three ("Day Three Tr.") at 74, Docket No. 263 (confirming that Method suggested that Me-PB-Hyos should be linked to Donnatal). Method also provided pricing information for the Me-PB-Hyos products. The listed prices for the Me-PB-Hyos products were lower than the listed prices for the Donnatal products. Although Method knew that the products described in the Me-PB-Hyos labels and inserts did not exist, and that no stability testing had been performed to develop the products, Method indicated that the pricing information was effective as of April 1, 2014. Based on the information provided by Method, the Me-PB-Hyos products were listed in the Medi-Span database and assigned the same Generic Product Identifier ("GPI") as Donnatal.

         In addition to Medi-Span, Method undertook to have its Me-PB-Hyos products listed in First Databank's pharmaceutical database. However, First Databank refused to list the Me-PB-Hyos products without validation from DailyMed, a website operated by the National Library of Medicine. Consequently, Method endeavored to list the Me-PB-Hyos products with DailyMed. Method sent DailyMed the product labels for the nonexistent Me-PB-Hyos products. Despite knowing that the products described in the labels did not exist, and that no stability testing had been performed to develop the products, Method indicated that it intended to start marketing the products on June 1, 2014.

         On June 3, 2014, after successfully listing Me-PB-Hyos with DailyMed, Method resubmitted the Me-PB-Hyos product labels to First Databank. Method indicated that its planned launch date for the products was June 1, 2014, a day that had already passed. At that time, Method knew that no Me-PB-Hyos products were available to launch the following day, much less two days earlier. See Boone Tr. at 46-47. Method also knew that the information that it provided would be relied upon by members of the pharmaceutical industry. Id. Method's efforts were once again successful, and the Me-PB-Hyos products were listed in First Databank's pharmaceutical database in early June 2014.

         By that point, the Medi-Span listing also showed a marketing start date of June 1, 2014 for the Me-PB-Hyos products. Method was aware of this fact, and even reviewed the Medi-Span listing on June 3, 2014 to confirm that the marketing start date had been added. See Tucker Tr. at 25-26.

         On September 15, 2014, after the instant action was filed, Method contacted Winder via email regarding the Me-PB-Hyos project. Method indicated that it knew that Winder had not started anything on the project, and that the company had decided that it "might be best to bail on [the] project." PL's Trial Ex. 25. Nonetheless, that same day, in response to an inquiry from Medi-Span regarding the status of Me-PB-Hyos, Method advised Medi-Span that "Me-PB-Hyos is an active product and will be available to ship by November 15, 2014." Boone Tr. at 40. Method also confirmed that "[t]he pricing and label... are current and correct." Id.

         Ultimately, Method never launched the Me-PB-Hyos products, and the products were not manufactured by Winder or any other company. In mid-October 2014, Medi-Span removed the listings for the Me-PB-Hyos products. Around the same time, First Databank moved its listings for the Me-PB-Hyos products from active listings to archived listings.

         After the Me-PB-Hyos products were listed with Medi-Span and First Databank, Donnatal prescriptions and unit sales decreased. During the course of the litigation, the parties strenuously disputed whether the listings were the sole cause of the reduction in prescriptions and unit sales. At trial, Concordia presented evidence indicating that it experienced lost sales in excess of $29.4 million dollars after the Me-PB-Hyos products were listed with the databases. Concordia maintained that the database listings for the nonexistent products were solely responsible for the decline in sales. Method, on the other hand, presented evidence indicating that a number of other factors contributed to the reduction in Donnatal unit sales, including significant increases in the prices of Donnatal products.

         Concordia also presented evidence regarding the efforts it undertook to alleviate confusion in the marketplace regarding the existence and availability of a generic alternative to Donnatal. For instance, Concordia spent $885, 015.00 on a coupon buy-down program implemented to combat the negative effects of the listings for Me-PB-Hyos. The company also revamped ...


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