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Monday, June 24, 2024 | Back issues
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Avandia-Linked RICO Claims Dog Drugmaker

(CN) - GlaxoSmithKline must face claims that its representation of the diabetes drug Avandia amounted to a racketeering conspiracy, the Third Circuit ruled.

The case stems from studies linking Avandia to heart problems soon after the Food and Drug Administration approved the drug as a diabetes treatment in 1999.

One offshoot of multidistrict litigation over the drug involves the claims of third-party payors, welfare and benefit funds that say Glaxo conned them into covering their members' Avandia prescriptions.

Since Glaxo marketed Avandia as a more effective and safer alternative to the cheaper Type II diabetes treatments already on the market, the benefit plans say they covered Avandia prescriptions at a more favorable rate than they would have if Glaxo had not concealed the heart-related risks.

The plans contend that Glaxo's manipulation of data and scientific literature, the misleading statements it made in its 2007 advertising campaign, and its intimidation of physicians to publish false and misleading articles all served to increase Avandia sales.

Their federal lawsuit alleges violations of federal anti-racketeering law, through mail fraud, wire fraud, witness tampering, misuse of interstate facilities, and other issues.

In late 2013, U.S. District Judge Cynthia Rufe refused to dismiss the RICO claims alleged by the three plans run by Allied Services, UFCW Local 1776 and United Benefit Fund.

A three-judge panel of the Third Circuit affirmed Monday, distinguishing the Avandia case from its 2000 precedent in Maio v. Aetna Inc., which involved health insurance beneficiaries accusing their insurer of RICO violations based on alleged misrepresentations of HMO plan services.

"Unlike the injury suffered by plaintiffs in Maio, the injury suffered by the TPPs here is not contingent on future events," Judge Jane Roth wrote for the three-judge panel. "The TPPs' damages do not depend on the effectiveness of the Avandia that they purchased, but rather on the inflationary effect that GSK's allegedly fraudulent behavior had on the price of Avandia. By contrast, the damages suffered by the plaintiffs in Maio were entirely dependent on the quality of the healthcare they received."

In this case, the funds suing Glaxo identified a much cheaper alternative, metformin, as the most prevalent oral drug therapy for Type II diabetes prior to Avandia.

"Despite GSK's contention, it was not necessary for plaintiffs to have included a price comparison between Avandia and Actos, another Type II diabetes drug," Roth wrote. "Although metformin may belong to an older class of drugs, it is not entirely clear when - or even if - Actos was a more popular alternative to Avandia than metformin. Again, GSK seeks a dismissal as a matter of law when there is a factual dispute between plaintiffs and GSK on the existence of alternative therapies. It is sufficient that a plaintiff identify in the pleadings a specific alternative drug that doctors would have prescribed and that would have cost less."

James Dugan, an attorney for Allied Services and UFCW Local 1776, said he is "pleased" with the ruling.

"It was a very well-reasoned opinion based on the law and facts of the case consistent with Judge Rufe's opinion and other circuits' law in this area," New Orleans-based Dugan said in an email. "When a pharmaceutical company commits fraud or creates a defective drug, the third-party payors have suffered real injury in these cases, as they are the ones who are responsible for paying the vast majority of the price of the drug, especially when a cheaper safer alternative drug is available. The plaintiffs look forward to a trial on the merits in this case."

Marc Grossman, an attorney for United Benefit Fund, said the ruling "allows UBF to seek justice for overpaying for Avandia for our client's members."

"We believe the decision was very well thought out and we look forward to having a trial so that we can recoup the monies for our client and its thousands of members who are victims here by spending far more than they should have for their much-needed medication," Mineola, N.Y.-based Grossman said in an email. "We believe justice will prevail."

Glaxo spokeswoman Jenni Brewer Ligday said the firm is "disappointed" with the ruling.

"We intend to vigorously defend our position," Ligday said in an email. "GSK believes that health insurers do not have a valid cause of action when patients who benefitted from a medicine do not allege any adverse effects."

Glaxo initially reached a $3 billion settlement with state and federal governments in July 2012 related to its marketing of Avandia. The drugmaker agreed later that year to spread $90 million across 38 states.

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