Pfizer Inc. and Tris Pharma, Inc. v. the State of Texas and Tarik Ahmed

Opinion

ACCEPTED 15-25-00021-CV FIFTEENTH COURT OF APPEALS AUSTIN, TEXAS 3/10/2025 4:49 PM CHRISTOPHER A. PRINE No. 15-25-00021-CV CLERK FILED IN 15th COURT OF APPEALS AUSTIN, TEXAS 3/10/2025 4:49:44 PM CHRISTOPHER A. PRINE Clerk

PFIZER INC. and TRIS PHARMA, INC., Petitioners/Defendants, v.

The STATE OF TEXAS and TARIK AHMED, Respondents/Plaintiffs.

On Appeal from the 71st Judicial District Court, Harrison County

Plaintiffs’ Response to Defendants’ Petition for Permission to Appeal

KEN PAXTON JONATHAN D. BONILLA Attorney General of Texas Assistant Attorney General

BRENT WEBSTER JORDAN UNDERHILL First Assistant Attorney General Assistant Attorney General

RALPH MOLINA VIVIAN EGBU Deputy First Assistant Attorney General Assistant Attorney General

AUSTIN KINGHORN NADIA BURNS Deputy Attorney General for Civil Litigation Assistant Attorney General

AMY SNOW HILTON Office of the Attorney General Chief, Healthcare Program Enforcement Healthcare Program Enforcement Division Division P.O. Box 12548, Capitol Station 056 Austin, Texas 78711-2548 Counsel for the State of Texas

TABLE OF CONTENTS

TABLE OF CONTENTS .......................................................................................i

INDEX OF AUTHORITIES..................................................................................ii

ISSUE PRESENTED CORRECTED ..................................................................... 1

STATEMENT OF FACTS AND PROCEDURAL HISTORY ............................. 1

SUMMARY OF THE ARGUMENT .....................................................................4

STANDARD OF REVIEW .................................................................................... 5

ARGUMENT .........................................................................................................9

I. To Permit this Appeal to Proceed, this Court Must Address a Threshold Jurisdictional Issue ........................................................................................9

II. This Appeal Does Not Present a Controlling Question of Law as to Which There is a Substantial Ground for Difference of Opinion. ........................... 10

A. Defendants Misrepresent Plaintiffs’ Position to Make This Disagreement Appear Legitimate...................................................... 10

B. The Issue Raised by Defendants is Neither Novel nor Difficult and Does Not Require the Immediate Intervention of this Court............. 12

III. An Immediate Appeal Would Not Materially Advance the Ultimate Termination of the Litigation ...................................................................... 19

CONCLUSION .................................................................................................... 21

CERTIFICATE OF COMPLIANCE ................................................................... 23

CERTIFICATE OF SERVICE .............................................................................24

i

INDEX OF AUTHORITIES

Cases Page

City of Houston v. Houston Professional Fire Fighters' Association, Local 341, 626 S.W.3d 1 (Tex. App.—Houston [14th Dist.] 2021) ............................................ 18

CMH Homes v. Perez, 340 S.W.3d 444 (Tex. 2011) ............................................... 10

Crosstex Energy Servs., L.P. v. Pro Plus, Inc., 430 S.W.3d 384 (Tex. 2014).............. 15

Gulf Coast Asphalt Co., L.L.C. v. Lloyd, 457 S.W.3d 539 (Tex. App.—Houston [14th Dist.] 2015, no pet.) .................................................................................. 10

In re Xerox Corp., 555 S.W.3d 518 (Tex. 2018) .................................................16, 18

Indus. Specialists, LLC v. Blanchard Ref. Co. LLC, 652 S.W.3d 11 (Tex. 2022) ..........

.................................................................................................................... 7, 8, 9

Kennedy v. Andover Place Apartments, 203 S.W.3d 495 (Tex. App.—Houston [14th Dist.] 2006, no pet.) ............................................................................................. 9

Lippincott v. Whisenhunt, 462 S.W.3d 507 (Tex. 2015) ...................................... 4, 12

Malouf v. State ex rels. Ellis, 694 S.W.3d 712 (Tex. 2024) ........................... 15, 16, 18

Molinet v. Kimbrell, 356 S.W.3d 407 (Tex. 2011) ................................................... 13

Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014).......................................................... 14

Sabre Travel Int'l, Ltd. v. Deutsche Lufthansa AG, 567 S.W.3d 725 (Tex. 2019) .........

............................................................................................................... 5, 6, 7, 10

Silguero v. CSL Plasma, Inc., 579 S.W.3d 53 (Tex. 2019) ....................................... 12

State ex rel. NPT Assocs. v. Lab’y Corp. of Am. Holdings, No. 01-23-00043-CV, 2024 WL 5249087 (Tex. App.—Houston [1st. Dist.] Dec. 31, 2024, no pet. h.) ............. ............................................................................................................... 14, 15, 20

TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011).................... 13

ii

Statutes

21 U.S. Code § 351(a)(1) ......................................................................................... 1

Tex. Civ. Prac. & Rem. Code § 51.014 ....................................................................7

Tex. Civ. Prac. & Rem. Code §51.014(d) ............................................................ 8, 9

Tex. Civ. Prac. & Rem. Code § 51.014(f) ............................................................... 9

Tex. Civ. Prac. & Rem. Code § 51.014(d), (f)...................................................... 7, 8

Tex. Const. art. V, § 3-b......................................................................................... 6

Tex. Health & Safety Code § 431.111(a)(1)(B) ........................................................ 1

Tex. Hum. Res. Code §§ 36.002(1) and (4)(B) ..................................................... 20

Tex. Hum. Res. Code §§ 36.002(1), (2), and (4)(B) ............................................. 20

Tex. Hum. Res. Code § 36.002(2) .............................................................. 14, 15, 20

Tex. Hum. Res. Code § 36.002(7) ......................................................................... 19

Tex. Hum. Res. Code § 36.002(7)(C)............................................................. passim

Tex. Hum. Res. Code § 36.002(1), (4), and (12) ................................................... 13

Rules

Tex. R. App. P. 28.3 ............................................................................................ 1, 7

Tex. R. App. P. 28.3(a) ...........................................................................................7

Tex. R. App. P. 28.3(e)(4).......................................................................................7

Tex. R. App. P. 47 .................................................................................................. 9

Tex. R. Civ. P. 168 ..................................................................................................7

iii

ISSUE PRESENTED CORRECTED

Whether this court should permit an appeal under Texas Civil Practice &

Remedy Code § 51.014(f) and Texas Rule of Appellate Procedure 28.3 when the

Defendants cannot demonstrate (1) that this petition involves a controlling question

of law as to which there is substantial ground for disagreement; and (2) that an

immediate appeal will materially advance the ultimate termination of this litigation.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

On November 8, 2023 the State of Texas and Tarik Ahmed (“Plaintiffs”) filed

the First Amended Petition in the 71st District Court alleging, among other things,

that Pfizer Inc. (“Pfizer”) and Tris Pharma, Inc. (“Tris”) (collectively,

“Defendants”)1 defrauded Texas Medicaid by knowingly manufacturing and

distributing an ADHD drug intended for children—Quillivant XR (“QXR”)—that

was adulterated under both the Federal Food, Drug, & Cosmetics Act (“FDCA”)2

and the Texas Food, Drug, & Cosmetics Act (“TFDCA”)3 during the time period

relevant to the lawsuit. See Plaintiffs’ Second Amended Petition (“SAP”) ¶ 2.

Plaintiffs brought four causes of action against Pfizer under the Texas Health Care

1 The CEO of Tris, Ketan Mehta, is also a named defendant in this lawsuit. His appeal challenging

personal jurisdiction is currently pending on appeal before this Court. See 15-24-00021-CV. 2 21 U.S. Code § 351(a)(1).

3 Tex. Health & Safety Code § 431.111(a)(1)(B).

2

Program Fraud Prevention Act (“THFPA”)4 and one cause of action against Tris.

SAP ¶¶ 124-127.

More specifically, Plaintiffs allege that, from at least 2012 to 2018, Tris

manipulated the FDA-mandated quality control tests for QXR to secure passing

results. See SAP ¶ 44. Plaintiffs allege that Tris—responsible for manufacturing

QXR—struggled to produce QXR, which routinely failed quality control tests. SAP

¶¶ 49-50. Rather than determine the cause of these failures, Tris manipulated its

testing processes to make it easier for QXR to pass. See generally, SAP Section VII.B.

Additionally, Pfizer—responsible for the distribution and marketing of QXR—knew

about the testing failures, manipulation, and patient complaints related to QXR and

did nothing to properly investigate and remediate the situation. SAP ¶¶ 64-76.

Defendants concealed this manipulation—and the fact that QXR was adulterated as a

result—from Texas Medicaid and its predominantly pediatric population, so that they

could continue to distribute and profit from sales, without regard for the safety,

efficacy, or quality of the adulterated QXR. See SAP ¶¶ 46-48, 77-78.

On February 5, 2024, Pfizer filed a Rule 91a Motion to Dismiss. This Motion

was joined in its entirety by Tris, which also filed a separate Rule 91a Motion to

4 Tex. Hum. Res. Code Chapter 36 (Formerly called the Texas Medicaid Fraud Prevention Act,

or “TMFPA.”).

3

Dismiss. Following Plaintiffs’ response and oral argument, Judge Morin denied both

Motions to Dismiss.5 Defendants filed a Joint Motion for Reconsideration or

Clarification on July 2, 2024. Following Plaintiffs’ response, the Court denied the

Motion for Reconsideration on August 12, 2024.

On August 30, 2024, Defendants filed a Joint Motion to Amend Previous Order

and Certify for Interlocutory Appeal. This Motion specifically requested that the

Court amend its orders denying Pfizer and Tris’s Motions to Dismiss to allow appeal

on a single issue: whether section 36.002(7)(C) of the THFPA requires Plaintiffs to

plead materiality. Following the Plaintiffs’ response, the Court denied this Motion on

October 10, 2024.6

On November 18, 2024, the Court indicated it would, on its own initiative, re-

hear Defendants’ Joint Motion to Amend via oral argument. Prior to the hearing,

Plaintiffs filed their Second Amended Petition on January 17, 2025, to remove a

request for injunctive relief against Defendant Pfizer that was unrelated to the present

controversy. Following a hearing on January 27, 2025, the Court reversed its October

5 Defendants falsely assert that during this hearing, “the State has repeatedly avoided answering”

the question of why the State continued to pay for QXR. Defs. Pet. at 11. Yet Plaintiffs directly addressed this question. See Tr. 41:5-21, June 10, 2024 (attached as Appendix Tab A). 6 Attached as Appendix Tab B.

4

10, 2024 order and granted Defendants’ Motions to Amend, allowing Defendants to

move forward with their permissive appeal.

SUMMARY OF THE ARGUMENT

It is black-letter law that “[a] court may not judicially amend a statute by adding

words that are not contained in the language of the statute.” Lippincott v. Whisenhunt,

462 S.W.3d 507, 508 (Tex. 2015) (per curiam). Yet, this is precisely what Defendants

asked the trial court to do and what they are now inviting this Court to do. This issue—

already readily settled by an extensive line of precedent—does not present a

“controlling question of law as to which there is a substantial ground for difference of

opinion.” See Tex. Civ. Prac. & Rem. Code § 51.014(d). As will be explained below,

there is no room for a difference of opinion on this topic, let alone “substantial

ground” for one.

Additionally, this appeal will not materially advance the ultimate termination of

this litigation. In addition to the section 36.002(7)(C) claims, Plaintiffs assert claims

under sections 36.002(1), (2), and (4)(B) against Pfizer, none of which rely on section

36.002(7)(C) to succeed. Thus, resolving this single question in Pfizer’s favor would

not substantially shorten or advance the termination of the case.

Indeed, if this Court were to hold that section 36.002(7)(C) requires Plaintiffs to

plead materiality, Plaintiffs would, presumably, be given an opportunity to amend

5

their pleadings. Thus, any decision in Defendants’ favor would delay the case, rather

than push it towards resolution.

Considering this is now the fifth time that Defendants are litigating an argument

initially raised in their Rule 91a Motions to Dismiss, their suggestion that they are

concerned with ensuring the efficient resolution of this case rings hollow. Time spent

debating a meritless legal theory could instead be invested in resolving this case.

Because neither requirement of Tex. Civ. Prac. & Rem. Code § 51.014(d) are met,

this Court should deny Defendants’ Petition.

Further, because the Amended Orders concern the First Amended Petition,

rather than the live pleading, this Court should evaluate whether it has jurisdiction to

entertain Defendants’ Petition.

STANDARD OF REVIEW

Generally, “appeals may be taken only from final judgements.” Sabre Travel

Int'l, Ltd. v. Deutsche Lufthansa AG, 567 S.W.3d 725, 730 (Tex. 2019). “Consistency,

finality, and judicial economy fix the final judgment rule in our jurisprudence so that

appellate courts . . . decide issues on a full record, do not unnecessarily delay the

underlying trial, avoid futility, and consider all issues in a single round of review.” Id.

Of course, the Texas Constitution allows for certain exceptions to the final judgment

6

rule,7 as does Tex. Civ. Prac. & Rem. Code § 51.014. Under Tex. Civ. Prac. & Rem.

Code § 51.014(a), there are several specific instances in which a “person may appeal

from an interlocutory order of a district court, county court of law, statutory probate

court, or county court.” These enumerated instances are frequently referred to as

“interlocutory appeals as of right” because the appellant need not seek judicial

permission before filing the interlocutory appeal. See Sabre Travel, 567 S.W.3d at 730.

In contrast, subsections 51.014(d) and (f) provide for permissive appeals. Texas

Civil Practice & Remedies Code § 51.014(d) states:

On a party’s motion or on its own initiative, a trial court in a civil action may, by written order, permit an appeal from an order that is not otherwise appealable if:

(1) the order to be appealed involves a controlling question of law as to which there is a substantial ground for difference of opinion; and (2) an immediate appeal from the order may materially advance the ultimate termination of the litigation.

(Emphasis added). Likewise, section 51.014(f) says that “[a]n appellate court may

accept an appeal permitted by Subsection (d) . . . .” (emphasis added). The use of the

phrases “may . . . permit” in section 51.014(d) and “may accept” in section 51.014(f)

indicate that “the Legislature conveyed a discretionary function” to the trial and

appellate courts. Sabre Travel, 567 S.W.3d at 730.

7 See, e.g., Tex. Const. art. V, § 3–b.

7

The associated rules promulgated by the Texas Supreme Court reflect this

discretionary doctrine. See Tex R. Civ. P. 168; Tex. R. App. P. 28.3(a). The comments

to Texas Rule of Appellate Procedure 28.3 state that “[t]he petition procedure in Rule

28.3 is intended to be similar to the Rule 53 procedure governing petitions for review

in the Supreme Court.” This means that “the courts of appeals can similarly accept

or deny a permissive interlocutory appeal as [the Supreme Court] can a petition for

review.” Sabre Travel, 567 S.W.3d at 731.

In both instances—at the trial and appellate level—a court may only permit an

appeal if (1) there is a controlling question of law as to which there is a substantial

ground for a difference of opinion; and (2) an immediate appeal from the order may

materially advance the ultimate termination of the litigation. See Tex.

Civ. Prac. & Rem. Code § 51.014(d), (f); Tex. R. Civ. P. 168; and Tex. R. App. P.

28.3(e)(4).

“[T]he limits section 51.014 imposes restrict the permitting and accepting—

not the denial or refusal—of an interlocutory appeal.” Indus. Specialists, LLC v.

Blanchard Ref. Co. LLC, 652 S.W.3d 11, 16 (Tex. 2022) (plurality op.). This means

that “[a] trial court may permit an appeal only ‘if’ subsection (d)’s two requirements

are met, and the court of appeals ‘may accept’ the appeal only if the application

8

explains ‘why an appeal is warranted under Subsection (d).’” Id. (quoting

§ 51.014(d), (f)).

Indeed, “courts have no discretion to permit or accept an appeal if the two

requirements are not satisfied.” Id. However, even if the two requirements are met, a

court of appeals is under no obligation to accept the appeal. As the Supreme Court

explicitly acknowledged, “[n]othing in the statute or in our rules implementing the

statute can be read to provide that the courts must permit and accept an appeal when

the requirements are met.” Id. In this sense, subsections 51.014(d) and (f) grant courts

“vast—indeed, unfettered—discretion to accept or permit the appeal.” Id.

Additionally, a trial court’s conclusion that the requirements of section

51.014(d) are met does not constrain the appellate court’s discretion. Rather, “[u]nder

subsection (f), the trial court’s decision to permit the appeal is merely the prerequisite

for the court of appeals to exercise its discretion at all. The trial court’s conclusion

regarding the two requirements has no bearing on the court of appeals’ subsequent

evaluation of the requirements under subsection (f).” Id.

Thus, “section 51.014(f) permits Texas courts of appeals to accept a permissive

interlocutory appeal when the two requirements of section 51.014(d) are met, but it

grants the courts discretion to reject the appeal even when the requirements are met.”

9

Id. at 21. Additionally, Texas Rule of Appellate Procedure 47 “requires the courts to

state only their basic reasons for their decision to accept or reject the appeal.” Id.

ARGUMENT

In this case, neither requirement of section 51.014(d) is met. This Court should

therefore decline to permit Defendants’ appeal. First, the controlling question of law

in this instance concerns a well-worn area of statutory interpretation. It is neither

novel, difficult, nor something of such import that it requires this Court to jump in

prior to final judgment. Second, a decision in Defendants’ favor on this question

would not “collapse”8 Plaintiffs’ case. Rather, a decision by this Court taking up the

interlocutory appeal and breaking from precedent by ruling in Defendants’ favor

would only protract this proceeding.

I. To Permit this Appeal to Proceed, this Court Must Address a Threshold Jurisdictional Issue.

Courts of appeal have “a duty to examine [their] own jurisdiction.” Kennedy v.

Andover Place Apartments, 203 S.W.3d 495, 497 (Tex. App.—Houston [14th Dist.]

2006, no pet.). This is especially true when a court is called on to depart from the final

judgment rule in the form of an interlocutory appeal, which “must be strictly

construed because it is ‘a narrow exception to the general rule that interlocutory

8 Defs. Pet. at 24.

10

orders are not immediately appealable.’” Sabre Travel, 567 S.W.3d at 736 (quoting

CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011)).

As stated above, Plaintiffs filed their Second Amended Petition on January 17,

2025. The Second Amended Petition removed a request for injunctive relief against

Defendant Pfizer. It does not alter the cause of action that this proposed appeal

concerns, but because the Amended Orders9 at issue specifically reference the First

Amended Petition, rather than the live pleading, this Court should evaluate whether

the Amended Orders must be corrected prior to consideration of this appeal.

II. This Appeal Does Not Present a Controlling Question of Law as to Which There is a Substantial Ground for Difference of Opinion.

A. Defendants Misrepresent Plaintiffs’ Position to Make This Disagreement Appear Legitimate.

To be eligible for a permissive interlocutory appeal, the order at issue must

concern a controlling issue of law with substantial ground for difference of opinion. In

interpreting this requirement, courts have noted that the disagreement at issue must

be a “legitimate” disagreement. See Gulf Coast Asphalt Co., L.L.C. v. Lloyd, 457

S.W.3d 539, 544 (Tex. App.—Houston [14th Dist.] 2015, no pet.).

9 See Defs. Appendix A.

11

In an attempt to manufacture a legitimate disagreement, Defendants repeatedly

accuse Plaintiffs of treating the THFPA as a strict-liability statute.10 This is wrong.

Plaintiffs have not, at any point in this proceeding, contended that the THFPA

establishes a strict-liability standard.11 Under Tex. Hum. Res. Code § 36.002(7)(C), a

person commits an unlawful act if the person “knowingly makes or cause to be made a

claim under a health care program for . . . a product that has been adulterated,

debased, mislabeled, or that is otherwise inappropriate.” (Emphasis added). Thus, a

cause of action under that section plainly requires that Defendants acted knowingly.

The specified provision is not one of strict liability—and neither are any of the other

unlawful acts enumerated under section 36.002.

Plaintiffs have accordingly pled that Defendants knowingly caused claims to be

made under Texas Medicaid for their adulterated product. SAP ¶ 127. The fact that

Defendants insist on painting Plaintiffs’ position as one of strict liability evince their

efforts to hide the ball, rather than engage honestly with the bare text of

section 36.002(7)(C).

This strategy is apparent in Defendants’ repeated suggestion that Plaintiffs

“failed” to plead materiality for the section 36.002(7)(C) claims. The verb “fail”

10 See Defs. Pet. at 15, 16, 18.

11 Plaintiffs have explained at each stage why the THPFA is not a strict liability statute. See Tr.

42:17-21, June 10, 2024; Tr. 18:14-19, January 27, 2025 (attached as Appendix Tab C).

12

presupposes that Plaintiffs had a duty to anticipate Defendants’ self-serving and

unsupportable interpretation of section 36.002(7)(C) such that Plaintiffs should have

pled something that is not required by the plain language of the provision. Plaintiffs

had no such duty and did not “fail” to do anything. Rather, Plaintiffs pled precisely

what is required by section 36.002(7)(C): that Defendants knowingly made or caused

to be made claims for an adulterated drug.

B. The Issue Raised by Defendants is Neither Novel nor Difficult and Does Not Require the Immediate Intervention of this Court.

The issue raised here is so well-settled that it does not provide “substantial

grounds for a difference of opinion” and justify the immediate intervention of an

appellate court. Rather, it is a straightforward issue of statutory interpretation with an

uncontroversial and straightforward answer: “[courts] presume the Legislature

included each word in the statute for a purpose and that words not included were

purposefully omitted.” Lippincott, 462 S.W.3d at 709.

This tenet—that courts must leave legislating to the Legislature—is thoroughly

enshrined in State law. “In interpreting statutes, [courts] must look to the plain

language, construing the text in light of the statute as a whole.” Silguero v. CSL

Plasma, Inc., 579 S.W.3d 53, 59 (Tex. 2019). When “the statute’s plain language is

unambiguous, [courts] interpret its plain meaning, presuming that the Legislature

intended for each of the statute’s words to have a purpose and that the Legislature

13

purposefully omitted words it did not include.” Id.; see also TGS-NOPEC Geophysical

Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011) (“[Courts] presume that the

Legislature chooses a statute’s language with care, including each word chosen for a

purpose, while purposefully omitting words not chosen.”); Molinet v. Kimbrell, 356

S.W.3d 407, 414–15 (Tex. 2011) (“It is the Legislature’s prerogative to enact statutes;

it is the judiciary’s responsibility to interpret those statutes according to the language

the Legislature used, absent a context indicating a different meaning or the result of

the plain meaning of the language yielding absurd or nonsensical results.”).

The THFPA contains a definition of “material.”12 Three of the unlawful acts

enumerated under section 36.002 use the word “material.”13 Given that “material”

is defined within the THFPA and used within some of the unlawful acts, the omission

of this word from other unlawful acts cannot reasonably be seen as anything other than

a deliberate legislative choice. If the Legislature intended for section 36.002(7)(C) (or

any of the other unlawful acts that do not use the word “material”) to require

materiality, it was more than capable of saying so.

12 Section 36.001 (5-a), defining material as “having a natural tendency to influence or to be capable

of influencing.” 13 See Tex. Hum. Res. Code § 36.002(1), (4), and (12).

14

The LabCorp case14 cited by Defendants further elucidates the lack of genuine

controversy. LabCorp concerned three unlawful act provisions of the THFPA:

subsections 36.002(1), (4)(B), and (2). The first two provisions use the word

“material,” while section 36.002(2) does not. The defendant, Lab. Corp., argued that,

despite the absence of the word “material” from the text of section 36.002(2), the

court should disregard the plain language of the statute, inserting an element of

materiality where the Legislature chose to omit it.

On appeal, the trial court’s decision siding with Lab. Corp. was reversed. In

doing so, the First Court explained that:

The word “material” does not appear in the text of section 36.002(2). At the same time, the Legislature included the word “material” in the provisions for three other unlawful acts in section 36.002. Statutory construction requires us to “study the language of the specific provision at issue, within the context of the statute as a whole, endeavoring to give effect to every word, clause, and sentence.”

LabCorp, 2024 WL 5249087, at *4 (quoting Ritchie v. Rupe, 443 S.W.3d 856, 867 (Tex.

2014)). The First Court noted that “[t]he fact that [section 36.002(2)] does not use

the word ‘material,’ while the text of other unlawful acts in the same statute contains

the word, demonstrates the Legislature’s choice not to impose a materiality

requirement in [section 36.002(2)].” Id.

14 State ex rel. NPT Assocs. v. Lab’y Corp. of Am. Holdings, No. 01-23-00043-CV, 2024 WL 5249087

(Tex. App.—Houston [1st. Dist.] Dec. 31, 2024, no pet. h.) (“LabCorp”).

15

As with section 36.002(2), the text of section 36.002(7)(C) is “clear and

unambiguous,”15 providing no reason for this Court to rewrite the statute in

opposition to legislative intent.16 While Defendants present the scenario of an

appellate court overruling a trial court as “conflicting decisions”17 this is merely

another example of Defendants’ use of generous rhetoric to disguise their

insubstantial position.

Additionally, the recent Malouf18 decision does not alter the lengthy and

consistent line of precedent requiring courts to take statutes as they are written.19

Malouf leaves the basic canons of statutory interpretation intact, including the tenet

that “[i]f the text’s meaning is unambiguous, we do not resort to extrinsic aids or

special rules of construction.” Id. at 718 (citing Crosstex Energy Servs., L.P. v. Pro Plus,

Inc., 430 S.W.3d 384, 389 (Tex. 2014)).

15 LabCorp, 2024 WL 5249087, at *5.

16 It is worth noting that one of the other claims Plaintiffs assert against Pfizer is under section

36.002(2), which, as LabCorp and the plain text of the statute makes clear, does not require materiality. Defendants do not challenge section 36.002(2). 17 Defs. Pet. at 21.

18 Malouf v. State ex rels. Ellis, 694 S.W.3d 712 (Tex. 2024).

19 It is worth noting that LabCorp was decided six months after the Malouf opinion, and includes

citations to Malouf.

16

Malouf merely reaffirms the axiom that if ambiguity exists in penal statutes such

as the THFPA,20 the ambiguous provision(s) should be strictly construed against the

State. See id. Yet when discussing the strict construction of penal statutes, the Malouf

Court again cautions:

Like all common-law construction rules, however, the rule of lenity applies only to the extent the statute at issue is unclear or ambiguous. Indeed, to say that a statute will be “strictly construed” is simply to say that any uncertain or ambiguous provision will be construed in favor of a particular party or result.

Malouf, 694 S.W.3d at 720 (emphasis added). So while Defendants are correct that

the rule of lenity applies to a penal statute when an ambiguous provision is being

evaluated, this rule is inapplicable when the provision in question is not ambiguous. As

explained above, there is no ambiguity regarding the omission of materiality from

section 36.002(7)(C) and thus, this Court must refrain from applying the rule of lenity

or any other extrinsic aid.

Because Defendants cannot identify any legitimate ambiguity, they instead kick

up dust, repeatedly accusing Plaintiffs of pursuing a “gotcha” case. Defendants’

attempt at misdirection is entirely irrelevant to the question of whether the Legislature

20 Additionally, Malouf did not change the legal landscape regarding the THFPA’s status as a penal

statute. The Supreme Court had previously held that the remedies outlined in the THFPA are “undeniably punitive in the aggregate” and that they “are penalties, not damages.” In re Xerox Corp., 555 S.W.3d 518, 527 (Tex. 2018).

17

hid a requirement for materiality within section 36.002(7)(C). Still, it is worth

dispelling the problematic arguments that Defendants raise.

For example, Defendants equate their conduct with that of a manufacturer

neglecting to replace a facility’s lightbulbs in a timely fashion. See Defs. Pet. at 11.

While there are issues with this hypothetical—for example, the presumption that a

failure to replace lightbulbs is per se immaterial—the more telling problem is that

Defendants compare their conduct with something they clearly believe to be

inconsequential. But here, Plaintiffs allege that Defendants spent at least six years

knowingly manipulating and concealing quality control testing for QXR—a drug

manufactured for children—in such a manner that Defendants could not say whether

the drug was working as intended, even in the face of numerous patient complaints.

SAP ¶¶ 49-84; 99-109. Defendants did not take proper corrective action until the FDA

finally uncovered the issue and sent a Warning Letter, which unambiguously declared

QXR to be adulterated based on Defendants’ deficient quality control practices. SAP

¶¶ 110-122.

If this is the type of conduct that Defendants believe to be a “mere foot-fault”21

then they appear to have excessively low standards for how pharmaceutical companies

ought to conduct themselves. This dismissive attitude towards patient safety and the

21 Defs. Pet. at 16.

18

proper expenditure of taxpayer dollars elucidates why the THFPA “plays such a

crucial role in the State’s ongoing ‘efforts to deter, detect, and punish’ [fraudulent]

schemes.” Malouf, 694 S.W.3d at 721 (Tex. 2024) (quoting In re Xerox Corp., 555

S.W.3d at 525).

Defendants additionally contend that the word “adulteration” necessarily

implies materiality. See Defs. Pet. at 20. This is not the controlling legal question the

trial court identified in its Amended Orders, however, and is not an argument

Defendants raised previously. In pursuing a permissive appeal, Defendants may not

add to the trial court’s description of the controlling legal question. See City of Houston

v. Houston Professional Fire Fighters’ Association, Local 341 626 S.W.3d 1, 23 (Tex.

App.—Houston [14th Dist.] 2021), aff’d, 664 S.W.3d 790 (Tex. 2023)).

Even so, Defendants’ proposed reading of section 36.002(7)(C)—that

“materiality” is baked into the word “adulterated”—would create a schism with the

rest of section 36.002(7)(C), injecting ambiguity where it does not presently exist.

Distributing an adulterated product is one way to violate this provision, but so is

distributing a product that is “debased,” “mislabeled,” or “otherwise

inappropriate.” Tex. Hum. Res. Code § 36.002(7)(C). Taken literally, Defendants’

argument implies that the Legislature intended only one of the types of conduct

circumscribed by section 36.002(7)(C) to require a showing of materiality.

19

The same can be said about the other unlawful acts enumerated by section

36.002(7), all of which are modified by the requirement that a defendant act

knowingly. The Legislature surely did not intend for only one of section 36.002(7)’s

unlawful acts to require an additional showing of materiality, but that is a necessary

result of Defendants’ position.

At bottom, Defendants want section 36.002(7)(C) to contain an unwritten

element of materiality. But that desire is insufficient to satisfy the first prong of

section 51.014(d). In contrast, Plaintiffs maintain the uncomplicated and

uncontroversial position that the statute should be read exactly as written and that this

Court (and any court) should interpret the Legislature’s omission of “material” as

deliberate, rather than unintentional or secretive. Accordingly, the Court should

decline to accept this appeal.

III. An Immediate Appeal Would Not Materially Advance the Ultimate Termination of the Litigation.

Even if the Court finds that section 51.014(d)(1) is satisfied, Defendants do not

properly explain why an immediate appeal would materially advance the ultimate

termination of the litigation. See Tex. Civ. Prac. & Rem. Code § 51.014(d)(2). An

interlocutory appeal on the issue of materiality under Tex. Hum. Res. Code

§ 36.002(7)(C) would not advance the case toward resolution, much less substantially

so. Instead, it would serve only to further delay the proceedings. This serves as a

20

separate and independent reason as to why Defendants’ Petition should be denied.

In addition to THFPA section 36.002(7)(C), Plaintiffs bring claims under

sections 36.002(1), (2), and (4)(B) against Defendant Pfizer. Defendants’ appeal

relates exclusively to section 36.002(7)(C), leaving the remaining claims unaffected.

Sections 36.002(1) and (4)(B) already require the Plaintiffs to plead materiality.

Plaintiffs have properly done so, and those causes of action are not challenged here.

Section 36.002(2), on the other hand, does not contain materiality as an element. See

LabCorp, 2024 WL 5249087, at *5. So, for Defendants to argue that a decision in their

favor would lead to the collapse of this case—presupposing that Plaintiffs are unable

to plead materiality with respect to the section 36.002(7)(C) claims—is misguided, at

best.

Additionally, a decision in Defendants’ favor rewriting section 36.002(7)(C) to

add an unstated element of materiality would not change the fact that QXR was

adulterated under the FDCA and TFDCA and, thus, in violation of both federal and

state law, which serves as the basis for Plaintiffs’ other causes of action. Thus, even

assuming a decision adverse to Plaintiffs’ position, Plaintiffs would still need to

conduct discovery into Tris’s handling of QXR testing; Pfizer’s oversight of Tris;

Defendants’ representations to Texas Medicaid; and issues relating to materiality,

among others.

21

Lastly, while it is true that Plaintiffs bring only a section 36.002(7)(C) claim

against Tris, the same argument applies. Plaintiffs did not plead what they were not

required, by the plain text of the statute, to plead. This does not mean Plaintiffs could

not plead materiality with regards to section 36.002(7)(C), if required.

CONCLUSION

Because neither of the requirements of section 51.014(d) are met in this case,

the Court should decline to hear this permissive appeal.

Date: March 10, 2025 Respectfully submitted,

KEN PAXTON Attorney General of Texas

BRENT WEBSTER First Assistant Attorney General

RALPH MOLINA Deputy First Assistant Attorney General

AUSTIN KINGHORN Deputy Attorney General for Civil Litigation

AMY SNOW HILTON Chief, Healthcare Program Enforcement Division

/s/Jordan Underhill JORDAN UNDERHILL Assistant Attorney General Texas State Bar No. 24102586 Jordan.Underhill@oag.texas.gov

JONATHAN D. BONILLA Assistant Attorney General Texas State Bar No. 24073939 Jonathan.Bonilla@oag.texas.gov

22

VIVIAN I. EGBU Assistant Attorney General Texas State Bar No. 24079078 Vivian.Egbu@oag.texas.gov

NADIA BURNS Assistant Attorney General Texas State Bar No. 24041176 Nadia.Burns@oag.texas.gov

Office of the Attorney General Healthcare Program Enforcement Division P.O. Box 12548, Capitol Station 056 Austin, Texas 78711-2548 Telephone: (512) 936-9932 Facsimile: (512) 320-0667

ATTORNEYS FOR THE STATE OF TEXAS

/s/ Jason T. Brown (by permission) Jason T. Brown (pro hac vice) Brown, LLC 111 Town Square Place, Suite 400 Jersey City, New Jersey 07310 (877) 561-0000 (office) (855) 582-5297 (fax) jtb@jtblawgroup.com

ATTORNEY FOR RELATOR TARIK AHMED

23

CERTIFICATE OF COMPLIANCE

I certify that according to the word count of the computer program used to

prepare this document, this document contains 4,500 words, not counting the parts

of the document excluded under Texas Rule of Appellate Procedure 9.4(i).

/s/ Jordan Underhill Jordan Underhill

24

CERTIFICATE OF SERVICE

I certify that a copy of this document was served by delivery to counsel below

by email and through the electronic case manager on March 10, 2025:

BROWN, LLC GILLAM & SMITH LLP Lead Counsel Harry “Gil” Gillam, Jr.

Jason T. Brown Tom Gorham (Admitted Pro Hac Vice) 303 S. Washington Ave. Patrick S. Almonrode Marshall, Texas 75670 (Admitted Pro Hac Vice) (903) 934-8450 (telephone) 111 Town Square Place, Suite 400 (903) 934-9257 (facsimile) Jersey City, New Jersey 07310 gil@gillamsmithlaw.com (877) 561-0000 (telephone) tom@gillamsmithlaw.com (855) 582-5297 (facsimile) jtb@jtblawgroup.com BLANK ROME LLP patalmonrode@jtblawgroup.com William E. Lawler III (admitted pro hac vice)

POTTER MINTON 1825 Eye Street NW A PROFESSIONAL CORPORATION Washington, D.C. 20006 Local Counsel william.lawler@blankrome.com Bobbye Pyke Michael E. Jones 717 Texas Avenue, STE 1400 E. Glenn Thames, Jr. Houston, Texas 77002 102 North College, Suite 900 bobbye.pyke@blankrome.com Tyler, Texas 75702 Huaou Yan (903) 597-8311 (telephone) One Logan Square (903) 593-0846 (facsimile) 130 North 18th Street mikejones@potterminton.com Philadelphia, PA 19103 glennthames@potterminton.com huaou.yan@blankrome.com

Attorneys for Relator Tarik Ahmed Attorneys for Defendant Tris Pharma, Inc.

25

THE VAL JONES LAW FIRM

George Valton (“Val”) Jones 109 West Austin St. Marshall, TX 75670-3340 (903) 927-2220 (telephone) val@valjoneslaw.com

FOLEY & LARDNER LLP

Edward D. (“Ed”) Burbach 600 Congress Avenue, Suite 2900 Austin, Texas 78701 (512) 542-7070 (telephone) (512) 542-7100 (facsimile) eburbach@foley.com

ROPES & GRAY LLP

Samantha Barrett Badlam (Admitted Pro Hac Vice) Stefan P. Schropp (Admitted Pro Hac Vice) 2099 Pennsylvania Ave., N.W. Washington, DC 20006-6807 (202) 508-4734 (telephone) samantha.badlam@ropesgray.com stefan.schropp@ropesgray.com

Attorneys for Defendant Pfizer, Inc.

/s/ Jordan Underhill Jordan Underhill

No. 15-25-00021-CV In the Court of Appeals for the Fifteenth Judicial District Austin, Texas PFIZER INC. and TRIS PHARMA, INC., Petitioners/Defendants, v.

The STATE OF TEXAS and TARIK AHMED, Respondents/Plaintiffs.

On Appeal from the 71st Judicial District Court, Harrison County

APPENDIX

Tab 1. Transcript of Motion to Dismiss Hearing, June 10, 2024 ...................................... A 2. Order Denying Defendants’ Joint Motion to Amend Previous Orders and Certify for Interlocutory Appeal............................................................................ B 3. Transcript of Motion to Amend Hearing, January 27, 2024 .................................. C

Tab A: Transcript of Motion to Dismiss Hearing, June 10, 2024

1

1 CAUSE NO. 23-1030 2 THE STATE OF TEXAS EX REL ) IN THE DISTRICT COURT TARIK AHMED )

3 )

vs. ) HARRISON COUNTY, TEXAS 4 )

TRIS PHARMA, INC., AND )

5 KETAN MEHTA ) 71ST JUDICIAL DISTRICT

6 7 CAUSE NO. 23-1031 8 THE STATE OF TEXAS EX REL ) IN THE DISTRICT COURT TARIK AHMED )

9 )

vs. ) HARRISON COUNTY, TEXAS 10 )

PFIZER, INC., TRIS )

11 PHARMA, INC., NEXTWAVE )

PHARMACEUTICALS, INC., AND)

12 KETAN MEHTA ) 71ST JUDICIAL DISTRICT

13 14 ________________________________________

15 MOTION TO DISMISS

________________________________________

16 17 18 On the 10th day of June, 2024, the following

19 proceedings came on to be heard in the above-entitled and

20 numbered cause before the HONORABLE BRAD MORIN, Judge

21 Presiding, held in Marshall, Harrison County, Texas:

22 Proceedings reported by computerized stenotype

23 machine, Reporter's Record produced by computer-assisted

24 transcription.

1 P R O C E E D I N G S 2 (JUNE 10, 2024) 3 4 THE COURT: All right. Court's going to 5 call 23-1030, State of Texas versus Tris Pharma and Ketan 6 Mehta and 23-1031 State of Texas versus Pfizer, Tris 7 Pharma, Nextwave Pharmaceuticals, and Ketan Mehta. 8 Announcements, please? 9 MR. JONES: Your Honor, Val Jones for 10 Pfizer, Samantha Badlam and some other lawyers that we 11 have here, and we're ready on our motion to dismiss 91A. 12 MR. GORHAM: Good afternoon, Your Honor. 13 Tom Gorham on behalf of Ketan Mehta and Tris Pharma, and 14 with me here is my law partner Gil Gillam. Also joining 15 us is Barrett Howell from Blank Rome. We're ready to 16 proceed. 17 MR. BONILLA: Jonathan Bonilla and Jordan 18 Underhill for plaintiff State of Texas. We're ready as 19 well. 20 THE COURT: All right. Mr. Gorham, I 21 believe it's your motion. 22 MR. BONILLA: Mr. Howell will be 23 presenting for us. Oh, I'm sorry. Who do you want to 24 start with? 25 THE COURT: Well, they look like they're

3

1 intertwined here, so I'll let you figure it out. It 2 doesn't make a difference to me where we start. 3 MR. JONES: If it please the Court, Your 4 Honor, we -- all parties have talked about splitting the 5 two hours up, and if it's okay with you, we're -- Pfizer 6 will take 40 minutes, and I'm going to take the first 7 five, and then Ms. Badlam is going to come up and make 8 sense of what I say. 9 THE COURT: All right. 10 MR. JONES: And she -- if it's okay with 11 the Court, she will quit 30 minutes, and we've leave five 12 minutes for rebut. 13 THE COURT: Great. Mr. Jones. 14 MR. JONES: Your Honor, as the Court 15 knows, this is a case where Pfizer and Tris are 16 defendants against the Texas Attorney General's office in 17 a case alleging fraud under the Texas Medicaid Protection 18 Act. 19 And, Judge, we -- in 2013 approximately, 20 Tris -- prior to that, Tris created an ADHD medicine 21 that -- that was known as Quillivant. Also throughout 22 this hearing, we'll just call it QXR, also known as 23 QXR -- primarily for children. 24 And in 2013, we -- the FDA approved this 25 in September of 2012, this drug, and in 2013, Pfizer had

4

1 purchased the drug. We were going to market it and sell 2 the drug. 3 We did what the first step is after the 4 FDA has approved the drug, and we filled out an 5 application known as a VDP, which is a vendor drug 6 program application, where we fill out, send it in. 7 And the Medicaid arm of the Health and 8 Human Services Commission -- let me get rolling here -- 9 received our application in January of '13, and it was 10 authorized by Medicaid, and -- and eventually in 2014, it 11 went on to be placed on the preferred drug list, PDL. 12 As soon as it was authorized, we had the 13 right to market and sell the drug here in Texas. We did 14 that from 2013 to 2018, and that is when Tris purchased 15 it back from us. 16 This case, Your Honor, as you know, is 17 brought under this act, and after we marketed and sold 18 the QXR for five years, we were full steam ahead. We 19 had -- the prescriptions were written to Medicaid after 20 Medicaid authorized recipients. The doctors prescribed 21 them. The drug companies -- drug stores sold it. 22 And Medicaid paid like clock work and 23 obviously were very happy with this drug because they 24 paid and they paid over and over and over and over and 25 over and over again. Many people used it. There was

5

1 approximately about a hundred thousand prescriptions 2 written when Pfizer owned it that were paid by Medicaid. 3 In -- with the Health and Human Services 4 Commission and, you know, Medicaid's blessings, this 5 continued the full time that we owned it, and the -- 6 then, as the Court knows, in November of '23, last year, 7 the State of Texas sued Tris and Pfizer. 8 The lawsuit -- and we will back to this 9 several times, but the lawsuit, Judge, is about fraud. 10 It's about them saying that Pfizer defrauded the State 11 under this act and under this -- the code and the facts 12 of the case. 13 I think you're going to see, Your Honor, 14 the facts of the case and the -- the legal grounds aren't 15 there. It's -- it's -- they're trying to make silk out 16 of a sow's ear. They're trying to make fraud out of 17 non-fraud. 18 They're trying to make fraud out of laws 19 that don't say what they're trying to say they say and 20 out of facts that you're going to see in the allegations 21 and the cause of actions they've done -- they filed that 22 don't say what they say they say. 23 This -- this -- there are four basic 24 allegations of cause of actions that we're dealing with 25 in this case, and Ms. Badlam is going to come up and show

6

1 the Court what we're talking about on the facts that are 2 given in the petition that they have filed, also with the 3 application, the VDP application that was filed with the 4 act itself, the statute itself. 5 There are two that are dealing with a 6 certification paragraph in the application for VDP, and 7 you're going to see that the certification does not say 8 what they're trying to make it say, and if it doesn't say 9 what they're making it say, it's not fraud, period. 10 Also, Judge, one -- you're going to hear a 11 term called adulteration, a situation which how product 12 was developed. Sam is going to talk to you about that, 13 but you're going to see that there is no law that 14 requires Pfizer to do what they said Pfizer had to do 15 that would amount to fraud. Without that, there's no 16 fraud. 17 And then last, Your Honor, is the TMFP 18 Act, which in itself in 36.002 where it says unlawful 19 acts, she's going to point out to you there how they 20 can't hold Pfizer responsible under that act because we 21 haven't -- the -- the key significant trigger of whether 22 it's on your -- your product is authorized or 23 unauthorized to sell hasn't been pled, and so they can't 24 hold us responsible or liable under that particular act. 25 There's none of the allegations and none

7

1 of the causes of action that they have brought in this 2 case, Judge, that are -- that are based in facts or law 3 in their petition and the four corners of that petition. 4 It is truly making silk out of a sow's 5 ear. They're making this into a situation that so many 6 like to do that's some kind of strict liability and the 7 whole basis is what they say. We say fraud. We say 8 fraud. We stamp fraud. It's fraud. You've got to 9 accept it's fraud, and we've gotcha. 10 It's a we gotcha deal, and they're trying 11 to use the statute to enrich some whistleblower in a law 12 firm in the state when we've not done anything wrong and 13 we've not violated this statute as they say. 14 You know, Judge, when they -- when they 15 present their case, you may ask them that if this is such 16 a terrible product or if there were incidences that we 17 should have done something concerning this product, why 18 did they continue -- why did Medicaid continue to pay for 19 it and still paying for it to this day? Not once did 20 they stop doing that. 21 The -- you know, Judge, the damages, it's 22 obvious what they're after. It's obvious what they're 23 going for. It's pled in their damages, and, you know, 24 they want all their money back that they have paid for 25 Medicaid patients to get this drug. They want two times

8

1 that amount of money for good measures. 2 They want civil penalties. They want pre- 3 and post-interest and attorney fees, and then the 10,000 4 pound icing on the cake is under the statute they want 5 anywhere from 5500 to $11,000 per prescription that they 6 say violated the statute based on fraud. 7 Fraud's not in this case. It doesn't 8 exist, and I think Ms. Badlam is going to be able to come 9 up and show you that and dissect that. 10 Also, Judge, you know, they've got 11 injunctive relief in here. If they really thought this 12 product was so bad, they really thought some fraud was 13 committed, why wouldn't they ever come to this courtroom 14 and get the injunctive relief they asked for? 15 They've never done that. Because they're 16 not worried about it. That's why they keep paying for 17 it. That's why they like it, but now they just want a 18 gimme back, and they want to become rich on the back of 19 Pfizer for something Pfizer didn't do. 20 MS. BADLAM: Thank you. 21 THE COURT: Ms. Badlam. 22 MS. BADLAM: Good afternoon, Your Honor. 23 THE COURT: Good afternoon. 24 MS. BADLAM: So to be clear, this is 25 Pfizer and Tris Pharma's 91A motion to dismiss the

9

1 petition in the Quillivant matter. There is a separate 2 matter, which Pfizer is not a party in, that is -- that 3 is separate. 4 As Mr. Jones previewed, there are four 5 causes of action at issue here today. I'm going to go 6 ahead and put the statute up on the screen here behind 7 me. Hopefully you can read that. 8 These are the four provisions of the Texas 9 Medicaid Fraud Prevention Act that this matter is about. 10 Three causes of action are based on claims that Pfizer 11 knowingly made false statements, misrepresentations, 12 and/or non-disclosures in connection with QXR's inclusion 13 on the vendor drug program formulary and the preferred 14 drug list. That's what Mr. Jones was explaining. 15 If a drug is included on the vendor drug 16 program formulary, it is authorized for payment by the 17 State, and then the VDP application, which we're going to 18 talk through -- we have a little packet of materials for 19 you. 20 MR. JONES: I'll pass them out to the 21 other side. 22 THE COURT: All right. 23 MS. BADLAM: In the package, there's a 24 PowerPoint. There's also the statute with the relevant 25 provisions highlighted. There's the 91A standard, and

10

1 there's also the VDP application with the certification 2 contained in it. This is going to be a main topic of 3 discussion today. It's page six on the VDP application. 4 So the application itself serves as the 5 basis for inclusion to the VDP formulary, and two causes 6 of action specifically relate to false statements, and 7 these causes of action have no basis in law and no basis 8 in fact and must be dismissed in their entirety. 9 So let's talk about these first and third 10 causes of action in plaintiffs' petition, which are based 11 on false statements. So as you can see on the screen, 12 these causes of action are discussed in paragraphs 124 13 and paragraph 126 of the petition. 14 The first cause of action, plaintiffs 15 allege that Pfizer knowingly made a false statement or 16 misrepresentation of material fact under Section 360021 17 when Pfizer certified on the VDP application that QXR was 18 not in violation of federal or state law and that it 19 would update Texas Medicaid as to any change in 20 Quillivant's product status. 21 Plaintiffs' cause of action number three, 22 which is the one in 126, also alleges that Pfizer 23 knowingly made a false statement or misrepresentation of 24 material fact under 360024B with the same certification 25 because it concerns information required to be provided

11

1 by federal or state law, rule, regulation, or provider 2 agreement pertaining to the Medicare program. 3 So these two causes of action on alleged 4 knowing false statements are specifically based on the 5 representation in the VDP application. So I'm going to 6 pull this up on the screen. If you want to see the 7 actual certification in the paper there, it's page six, 8 like I mentioned. 9 So this is what -- this is what the 10 certification says, and, again, these are two causes of 11 action that are based on the certification. The 12 certification reads, I certify that the information is 13 correct to the best of my knowledge and that the product 14 is not now in violation of either federal or state law. 15 I also agree to inform the Health and 16 Human Services Commission in writing of any changes in 17 formulation, product status, price or availability, as 18 herein described, within 15 days of such change. 19 And you can see on the screen and on the 20 paper that this certification was made by Pfizer on 21 January 8th, 2013. 22 Plaintiffs' allegations concerning this 23 VDP application are both factually and legally flawed. 24 First, Pfizer submitted this VDP application and the 25 certification in January of 2013, certified that QXR was

12

1 not now in violation of federal or state law. 2 If you look at the petition, the petition 3 concedes on paragraph 64 -- and it's up on the screen, 4 Your Honor, -- that Pfizer did not know until June 2013 5 that Tris was even considering changing its dissolution 6 test method, and that is the first date that Pfizer 7 allegedly knew something was amiss according to 8 plaintiffs. 9 We're going to talk a lot about this 10 dissolution testing, and I'm going to explain what that 11 is in just a minute, Your Honor, but the important point 12 here is that the allegation about the wrong conduct is 13 June 2013 where the certification was made in 14 January 2013. 15 So even if you were to believe that 16 considering changing a dissolution testing method somehow 17 violated federal or state law, which it does not, there 18 is a basic timing problem with plaintiffs' allegations. 19 And there are other allegations concerning 20 the other supposed wrongful conduct that are even later 21 in time. They're in -- you can see here -- September 22 2013 and June 2014. 23 Those are the allegations about consumer 24 complaints and particle testing, so even later than the 25 June 2013 date and much later than the January 2013 date

13

1 when the certification went in. 2 Now, plaintiffs have one conclusory 3 allegation in the petition that as early as October 2012 4 Pfizer was aware that Quillivant was having difficulty 5 meeting its FDA mandated testing specifications. 6 But this doesn't help their cause because 7 the allegation itself acknowledges that the product was 8 meeting its testing specifications. Having difficulty 9 meeting a testing specification is not a violation of 10 federal and state law. 11 If you look at the petition, there is not 12 one allegation that prior to this January 2013 13 certification that Pfizer knew of any conduct that could 14 have been said to have alleged federal -- violated 15 federal or state law. 16 So let's talk about the second part of the 17 certification because there's two sentences. The second 18 part of the certification requires Pfizer to update HHSC 19 about changes to QXR's product status. 20 Plaintiffs allege that Pfizer made a 21 material false statement in the certification because 22 Pfizer failed to update HHSC on changes to product 23 status, QXR's product status, but you'll see here in the 24 certification it specifically says as herein described. 25 So what is described in the VDP

14

1 application as it relates to product status? I have up 2 on the screen the relevant sections as it relates to 3 product status. 4 Product status includes at most the NDC 5 number, the DEA schedule, and, most importantly, FDA 6 approval status. The information contained within the 7 VDP application on product status has nothing to do with 8 the issues in the petition. 9 So I want to take a minute to pause and 10 talk about the issues in the petition because there's 11 three main issues, dissolution testing, particle size 12 testing, and investigations into lack of effect 13 complaints. 14 The big area is this dissolution testing, 15 so I want to explain what dissolution testing is. 16 THE COURT: Thank you. 17 MS. BADLAM: So dissolution testing, it's 18 a post-manufacturing control where the liquid is put into 19 essentially a fake stomach, and the fake stomach mimics 20 the body, and it measures the release rate of active 21 ingredients at set intervals of time. So it's 30 minute, 22 four-hour, eight-hour, 12-hour increments, and it's 23 measuring the release rates. 24 QXR's, this medicine, it comes in a 25 powder, so in order to test the product, it has to be

15

1 made into its liquid form because it's an ADHD medicine, 2 once a day, given in the morning. 3 It's a liquid medicine, and that was what 4 made this probably unique. It wasn't a pill, so it could 5 be given to children easily because it was a liquid 6 medicine. 7 So in order to make the liquid medicine, 8 you take the powder, and you add the water, and that's 9 what's called reconstitution, and I'm sure you saw that 10 in the petition and our motion, reconstitution. It's 11 literally just mixing the powder with the water to make 12 the liquid form, and then that is what's tested. 13 So when we talk about dissolution testing 14 and the changes to dissolution testing at issue in this 15 case, what changed was the way that that sample was 16 prepared for testing. So the way that the water was 17 added to the powder. 18 So it's almost like a -- if you think 19 about it like a Gatorade, like a powder Gatorade where 20 you add the water and shake it up and it dissolves. 21 That's basically what we're talking about here with this 22 medicine. 23 And that's what changed, the way in which 24 the water was added to the powder. Not the measurements, 25 not the specifications, none of that changed. Just the

16

1 way that it was mixed. 2 And why does that even matter? Well, 3 because it matters because of the hydration; right? If 4 you add water to powder, it has to be time for it to 5 hydrate. So there were changes made to how the 6 preparation was done for the hydration purposes. 7 You'll see allegations about sonication. 8 Well, sonication, what that is is just a -- it's a 9 machine with sound waves, and it agitates the particles 10 to try to get them to hydrate quicker. 11 Likewise, if you add a hold time. So if 12 you mix the powder with the water and you let it sit 13 there, it's going to hydrate over time because it takes 14 time for the particles to hydrate. 15 So what's important to remember about 16 this, though, is that when you're talking about this 17 liquid medicine, this issue of reconstitution only 18 impacts that very first dose because after the first 19 dose, it's completely hydrated. 20 So the question is then why? Why change 21 the method? Why do all of this; right? Well, what it 22 did was it actually more accurately mimicked real life 23 conditions around the dispensing of this product. 24 Because a pharmacist, when they mix the 25 product, when they reconstitute the product, they don't

17

1 turn around and hand it to a child immediately who takes 2 the medicine. That's not how this works; right? 3 This is a stimulant. It's given in the 4 morning, ADHD medicine, before school, and it releases 5 throughout the day, so the way that this typically works 6 is; right, a parent would call in a prescription. The 7 pharmacy mixes it, and it sits. 8 And then the parent comes and picks it up 9 most likely the night before, and it will sit at home, or 10 maybe they will pick it up several days before, and it's 11 sitting there, and it's hydrating; right? 12 It's not going to be the case that a 13 parent calls the pharmacy, runs to the pharmacy at 14 7:00 a.m., gives the medicine before the child gets on 15 the bus. That's not -- that's not how this works. So 16 when you're talking about changing the method for 17 preparation, it's more accurately mimicking those real 18 life conditions. 19 But going back to the cause of action 20 here, because this is the key part about the first and 21 third causes of action of why they're just legally 22 flawed, is that this whole issue with dissolution testing 23 and changing the sample preparation method has nothing to 24 do with product status as herein described the 25 application; right? There's a certification.

1 Likewise, any allegations about 2 investigations into out of spec dissolution testing 3 results, also not related, not herein described in the 4 application. 5 Same with the particle size testing. This 6 is the second issue. I mean, this isn't actually even an 7 issue based on the allegations in the -- in the petition 8 because they actually describe the right process that 9 Pfizer went through to submit the submission to FDA. 10 But, still, particle size testing, nothing to do with 11 this application. 12 And on the third category, these 13 investigations into consumer complaints, not contained 14 within this application. Nothing to do with the 15 application. 16 So why are we even talking about this? 17 Plaintiffs in their opposition to our motion, what 18 they're trying to do now is actually bootstrap this false 19 misrepresentation argument together by combining these 20 two certifications in this application. 21 So what they're saying is that the second 22 requirement about updating on product status as herein 23 described also requires an update to violations of 24 federal or state law. 25 But the plain reading of the

19

1 certification, that's not what it says. I mean, it 2 clearly says not now in violation and I will update on 3 product status. It's really a straightforward 4 interpretation question. 5 Plaintiffs' reading is also completely 6 impractical and unworkable. They are saying that the 7 certification requires companies to affirmatively 8 disclose every CGMP violation that could possibly render 9 a product adulterated no matter how trivial and unrelated 10 it is to the content actually contained in this 11 application. 12 And we're going to talk about the CGMP 13 violations a lot today. So Current Good Manufacturing 14 Practices, that's those -- that's those regulations there 15 in the FDA regulatory framework and the Texas regulatory 16 framework. There are 50 provisions, all with subparts, 17 on the specific good manufacturing practices. 18 And there are things in there, for 19 example, failing to sign a document in accordance with an 20 SOP can be a CGMP violation. The idea that this 21 certification is requiring a company to update HHSC on 22 every single one of these CGMP violations is ludicrous, 23 and it's not what this says. 24 The first, third cause of action here must 25 be dismissed as a matter of law. They're -- they're

20

1 foreclosed by plaintiffs' own allegations, and, 2 therefore, they should be dismissed. 3 So those are the false statement 4 allegations, so let's turn to the second cause of action. 5 So this is the cause action if you were to look at the 6 statute. It's 360022. This is the failure to disclose 7 cause of action. 8 So the statute specifically says knowingly 9 concealing or failing to disclose information that 10 permits a person to receive a benefit or payment under 11 the Medicaid program that is not authorized or that is 12 greater than the benefit or payment authorized. In other 13 words, Your Honor, if the information had been disclosed, 14 then the Texas Medicaid program would not have authorized 15 payment for the drug. 16 So let's start with what Pfizer allegedly 17 failed to disclose according to plaintiffs. As on the 18 screen and spelled out in paragraph 125 of the petition, 19 this cause of action hinges on Pfizer's failure to 20 disclose known quality issues related to dissolution 21 testing, particle size testing, and investigations of 22 lack of effect claims. 23 During the initial VDP application 24 process, the process we just talked about, and to the DUR 25 board, which is formerly the PT -- P&T committee, the

21

1 P&T -- that's DUR board, formerly the PT -- P&T 2 committee, recommends drugs placement on the preferred 3 drug list. And the preferred drug list, what that is, 4 it's critical because that means the drugs don't require 5 prior authorization. 6 So plaintiffs are alleging that there were 7 failure to disclose information as part of this process 8 and the VDP application. We've talked about the VDP 9 application extensively, and Pfizer couldn't have been 10 obligated to tell HHS about something that based on 11 plaintiffs' own pleadings Pfizer didn't even know about 12 until five months after the VDP application was 13 submitted. 14 So I want to talk about the preferred drug 15 list. Once the drug is approved, is authorized by the 16 DUR board -- excuse me -- by the VDP program -- there's a 17 lot of acronyms in this case. Vendor drug program 18 formulary is when it's authorized and it can be paid, and 19 then the PDL is the preferred drug list. Putting on the 20 list they don't have to get prior authorization. 21 The DUR board is responsible for making 22 recommendations what drugs go on the PDL, and HHSC 23 considers DUR board's recommendations, and it also 24 considers FDA's determination of clinical safety and 25 efficacy when figuring out what drugs to put on this PDL

22

1 list. 2 So plaintiffs are alleging that Pfizer 3 failed to disclose to the DUR board information 4 concerning the issues related to QXR in points of time, 5 January of 2014 when the DUR board first considered and 6 ultimately recommended adding QXR to the PDL, and then 7 later in November of 2017 when the DUR board considered 8 whether to continue listing QXR on the PDL. 9 So I want to be clear here about the PDL 10 because this is a point that Mr. Jones made earlier. The 11 product has remained on the PDL. It was never removed 12 from the preferred drug list to this day. 13 So not only was it never not authorized. 14 It continued to be authorized in the State of Texas for 15 payment by the State Medicaid program. It continued to 16 remain on the PDL. 17 And this is the fundamental deficiency 18 with plaintiffs' claim based on their own petition. Once 19 the information was disclosed, plaintiffs continued to 20 authorize payment and continued to keep the drug on the 21 preferred drug list. 22 The issues in this petition have been in 23 the public domain for many, many years. It started in 24 2017 when a letter went out, and then the big issue, 25 which you're going to hear a lot about today, is the

23

1 March 2018 FDA warning letter. 2 And the warning letter concerned issues 3 directly on point to the allegations that are in the 4 petition, and this is critical because the warning 5 letter -- and I'm going to talk more about what this is 6 and what it means, but the point here is that the 7 information that is in this petition was publicly 8 available as of March 2018. 9 It was available on FDA's website. The 10 warning letter, industry publications published it. 11 There were articles on this. It was out there in the 12 public. 13 And then four days later after that 14 warning letter came out, FDA explicitly permitted the 15 release of 11 batches of QXR that were potentially 16 impacted by the dissolution issues, a topic here today, 17 and permitted those to be released to the market, which 18 they never would have done if there was any issue with 19 the product. 20 And while they were doing that, they 21 issued a letter. A letter went out to doctors. It's 22 called the Dear Health Care Provider letter, another 23 publicly available disclosure, and then, of course, the 24 AG's three and a half year investigation. 25 Through this entire time, starting back in

24

1 2018, the product continued to be authorized for payment 2 in Texas and continued to remain on the PDL. 3 Neither the petition itself nor HHSC's 4 actual conduct provides any basis to conclude that the 5 State would have revoked authorization of QXR had the 6 issues been disclosed, which is what's required in this 7 particular section of the TMFPA. 8 Because when the information was 9 disclosed, it was not investigated. They continued to 10 authorize payment. This cause of action is foreclosed as 11 a matter of law. 12 I also want to point out one other -- one 13 other point that's discussed in the briefing on this, and 14 this relates to whether there's some other legal 15 obligation to disclose these issues to the DUR board. 16 So the DUR board, as I mentioned earlier, 17 looks at efficaciousness, safety, clinical significance, 18 and, importantly, cost effectiveness, and then it also 19 considers the FDA's consideration of clinical efficacy 20 and safety and then makes determinations. 21 So unlike the VDP process where there's a 22 formal application, there is no application. There is no 23 list of things that you have to provide. There really is 24 no obligation to provide anything. 25 In fact, if you look at plaintiffs'

1 response on this, they actually say a pharmaceutical 2 manufacturer does not have an obligation to present 3 information to the board. 4 But the plaintiffs, what they do say in 5 their opposition, they try to say that these alleged 6 issues in this -- in this petition about dissolution 7 testing and particle size testing and investigations, 8 that these raise red flags of safety and efficacy. 9 That's what they say in their opposition. 10 But if you look at the petition, they -- 11 these allegations are not in the petition. There are no 12 allegations that QXR's safety or efficacy was compromised 13 in any way. 14 What we have is one conclusory allegation 15 in paragraph 108 that insinuates that potentially there 16 was some efficacy impact going on with QXR, but this 17 section is not about dissolution testing. It's 18 completely separate from dissolution testing. It's 19 actually about failure to investigate complaints about 20 lack of effect. 21 When we talk about complaints, what we're 22 talking about is consumers who are calling and saying the 23 medicine doesn't work; right? It happens all the time. 24 My -- my blood pressure medicine isn't working. My 25 headache medicine isn't working; right? The doctors may

26

1 switch your dosage, but that's what we're talking about 2 as consumer complaints about lack of effect. 3 They're not connected to the dissolution 4 testing issues here. There's insinuations that are 5 trying to be made. That's not what -- that's not what 6 the petition actually says. 7 There are no claims in that petition that 8 the safety and efficacy was compromised in any way that 9 would have required some type of affirmative disclosure 10 to the DUR board, and even more importantly than that -- 11 not that that's not important, but even more critical is 12 FDA's involvement. 13 So the petition is replete with references 14 to FDA and FDA's involvement in this matter and how they 15 knew about the issues, how they were involved in the 16 issues, by that November 2017 period of time where 17 plaintiffs allegedly -- defendants allegedly failed to 18 disclose something to the DUR board in November of 2017. 19 FDA was fully involved, and FDA never 20 required QXR to be removed from the market, never made 21 any findings about QXR's safety or efficacy, and 22 plaintiffs just ignore FDA's rule in their response. 23 They don't even address it, but the petition does, and 24 the petition talks about it. 25 In fact, as I mentioned earlier, FDA

27

1 explicitly permitted the release of those batches that 2 were potentially impacted by the dissolution testing 3 issues right after the warning letter. 4 At the end of this day, this allegation 5 here in the second cause of action has to be dismissed as 6 a matter of law. 7 I mean, the -- not only did FDA know about 8 all of this and never made any findings of safety and 9 efficacy that would have required some type of 10 affirmative representation to the DUR board. But once 11 the State knew about the allegations in this petition, 12 they continued to authorize payment. That -- that can't 13 survive under the way the TMFPA is pled. 14 So let's talk about the fourth cause of 15 action. This is the one that relates to both Pfizer and 16 Tris. The first three are just about Pfizer. 17 This one is the adulteration cause of 18 action under 360027. So it's critical that we look at 19 the language of the statute in this section in its 20 entirety. It's up on the screen. It's highlighted for 21 you in that printout. 22 A person commits an unlawful act under the 23 TMFPA by knowingly causing to be made a claim under the 24 Medicaid program for, A, a service or product that has 25 not been approved or acquiesced in by a treating

28

1 physician, meaning a claim for a product or service that 2 the treating physician hasn't authorized. 3 B, a service or product that is 4 substantially inadequate or inappropriate when compared 5 to generally recognized standards, meaning that it's not 6 appropriate treatment for a given condition. 7 And then, C, a product that has been 8 adulterated, debased, mislabeled, or is otherwise 9 inappropriate, meaning in context a product that is 10 defective in some way. 11 All of these specific provisions here 12 relate to fraud in some way; right? The State doesn't 13 want to pay for a product that is defective. The State 14 doesn't want to pay for a product that your doctor didn't 15 authorize. The State doesn't want to pay for a product 16 that isn't up to par in terms of medical treatment. 17 It all makes sense because the statute, as 18 Mr. Jones started this conversation about, is about 19 fraud, and this is a key concept when you're looking at 20 the word adulterated. 21 Because as I mentioned earlier, 22 adulterated, when you look at the regulatory scheme here, 23 can mean so many different things, many technical, 24 immaterial CGMP violations. 25 But this term as used in the statute has a

29

1 clear connotation. It's focused on being defrauded, and 2 the petition itself describes in paragraph 128 the idea 3 is to prevent Texas Medicaid from paying for unauthorized 4 reimbursements. 5 So -- but here what's happening is that 6 you have CGMP violations that are at issue solely related 7 to manufacturing, has nothing to do with QXR safety and 8 efficacy. What we're dealing with here is a gotcha one. 9 It's a gotcha case. 10 If there's any CGMP violation, regardless 11 of whether there's an actual impact on drugs that Texans 12 needed and received, they can go after them. They can go 13 after companies. They can use that violation to say, 14 nope, you have to pay us back all the money times two, 15 times penalties. All these other payments have to come 16 back to us because we've gotcha. You have a CGMP 17 violation, so, therefore, the product is adulterated. 18 But the way the statute is written, the 19 way that particular section is drafted, it's supposed to 20 combat fraud and fraud matters. If you continue paying 21 for a medicine after you know about the alleged CGMP 22 violation, is that fraudulent conduct? Is that something 23 that really matters? Is that what the statute is 24 designed to prevent? 25 So that's kind of the bigger picture issue

30

1 when we talk about this adulteration program, but I want 2 to spend a minute talking about the way that the petition 3 is pled because it's interesting. 4 There is a lot of detail in it, but if you 5 actually look at that detail, what it is are statements 6 that don't actually allege which CGMP regulations were 7 violated and how those CGMP regulations were violated. 8 There's five main areas. I know that I'm 9 short on time, so I'm going to go through this fairly 10 quickly, but under -- under this -- these areas, 11 dissolution testing, there's ten pages detailing 12 allegations about sample preparation changes and 13 allegedly improper investigations. 14 But in this entire section, they don't 15 cite even one CGMP regulation that was violated and 16 explain how it was violated. Their opposition brief is 17 illustrative on this point. They claim that they have 18 cited the relevant CGMP at issue, but they highlight 19 paragraph 119 of the petition, which merely recites the 20 allegations in the warning letter. 21 Furthermore, so there is no CGMP 22 regulation that they could cite that bars changing the 23 way a sample is prepared for testing, and that's the 24 issue. 25 By just saying all of this stuff violated

31

1 the CGMP regulation without actually citing the 2 regulation or how, they're not providing fair notice. 3 Because in this example, there is no CGMP regulation that 4 the conduct violated. 5 So the warning letter; right? So what 6 happens is that what we see is that plaintiffs fall back 7 on the FDA warning letter, which has certain observations 8 relating to manufacturing practices at Tris that 9 Pfizer -- excuse me -- that FDA inspectors had when 10 inspecting Tris's facility, so this reflects certain 11 observations around process controls. 12 The letter itself had nothing to do with 13 the safety and efficacy of the product. Nothing to do 14 with claiming if the product was somehow defective, and, 15 importantly, this warning letter, it's not a final agency 16 action. 17 The letter says if these issues aren't 18 fixed that the FDA can take action, enforcement action, 19 against Tris, but FDA did not take enforcement action 20 against Tris. In fact, FDA did the opposite. Four days 21 later, they permitted those batches to be released to the 22 market despite issuing this warning letter. 23 And the agency never revoked approval, 24 never said safety and efficacy was compromised. The 25 agency would have never released those batches had they

32

1 thought safety and efficacy was compromised in some way. 2 So let's talk about the regulatory 3 submissions quickly. Plaintiffs allege that Pfizer and 4 Tris didn't make the correct filings with the FDA 5 regarding their changes to sample preparation method for 6 dissolution testing. This is about the filings. 7 I'm not going to get into all the reasons 8 why the allegations are just fundamentally wrong from an 9 FDA regulatory prospective. We have to believe them as 10 true, but the bottom line is that there was no CGMP 11 that's cited in this section, nor could they because it 12 actually doesn't violate a CGMP regulation. 13 The investigation, so there's failure to 14 investigate out of -- out of specification test results. 15 Again, what the petition does is talk about the 16 investigations, but then fails to allege how those 17 investigations violate a CGMP regulation. 18 They say they're deficient; therefore, 19 they violate a CGMP regulation, but they don't -- they 20 don't state how. They say, well, root cause wasn't 21 determined. 22 But, Your Honor, there is no CGMP 23 regulation that requires companies to find out root cause 24 of every single issue. It's impossible to do. That's 25 why there needs to be a CGMP regulation that's actually

33

1 cited and actually explained how it's violated. 2 Particle size testing, the fourth issue, 3 again, the allegations describe actually the correct 4 regulatory submission process that Pfizer and Tris 5 follow. 6 But, once again, it summarily states, oh, 7 well, they didn't investigate those particle size testing 8 issues properly. Again, no CGMP regulation that's cited 9 in that section, no description of why those 10 investigations didn't meet that CGMP requirements. 11 And, lastly, the failure to investigate 12 lack of effect complaints. There are CGMP regulations 13 that require companies to review complaints that come in. 14 That's the requirement. There are no specific 15 requirements about how those companies should investigate 16 those complaints. 17 And the petition itself actually 18 acknowledges that the complaints were investigated. 19 Again, not citing why. Why were those investigations 20 deficient? Why did they not meet CGMP regulations? 21 So, Your Honor, but let's just assume even 22 if we were to believe that QXR was technically 23 adulterated under CGMP violations, the big issue in this 24 case is that the reimbursement was authorized and 25 continued to be authorized under the TMFPA.

34

1 This is where the case becomes the gotcha 2 case. Plaintiffs are attempting to use the statute to 3 say that every single violation of an FDA CGMP 4 regulation -- and it should be clear, Texas has a 5 parallel statute, a parallel statutory scheme that 6 mirrors the FDA statutory scheme here. 7 That every single violation of one of 8 these technical manufacturing regulations renders the 9 product adulterated, meaning that the State gets their 10 money back times two, times penalties. 11 And the practical impact of this actually 12 is that if a company has a CGMP violation that renders 13 the product adulterated, what it actually means is that 14 company can't distribute or sell the product in the State 15 of Texas. 16 So FDA can say product is totally fine, 17 product is good, we're finding -- we're finding a 18 violation related to your signatures. Your signatures 19 are not correct. You have a CGMP violation technically 20 rendering the product adulterated. 21 That would mean that product needs to get 22 pulled from Texas, even though there's nothing wrong with 23 the product itself, even though FDA is not requiring to 24 get it removed from the market. That is the practical 25 impact of how the plaintiffs are reading that statute.

35

1 Now, plaintiffs, of course, argue that, 2 well, materiality, it doesn't apply to this section of 3 the TMFPA because it doesn't use the word material. 4 They cite a case in favor of their 5 position. That's the In Re: Xerox case from the Texas 6 State Supreme Court, but that case, to be clear, has 7 nothing do with materiality. The Texas -- that case is 8 literally for the proposition that statutes should be 9 read based on their plain meaning. It's not about 10 materiality. 11 And -- and the Supreme Court in that case 12 actually was satisfied that construing our statutes 13 according to their plain and ordinary language ultimately 14 leads to alignment with federal and state laws. 15 Here the State's position is inconsistent 16 with the TMFPA's language in that specific provision of 17 360027, which is focused on serious misconduct. It's 18 focused on fraud. Their position is also inconsistent 19 with the TMFPA if overarching goal of targeting fraud and 20 securing the Medicaid program's integrity. 21 This case around CGMP violations is one of 22 first impression, and the Xerox case supports defendants' 23 position, not plaintiffs. 24 So here we are now today with Texas saying 25 that Pfizer and Tris violated the law for distributing

36

1 and promoting QXR in Texas and wanting all the money back 2 it paid for the drug times two, plus penalties, 3 conveniently only through 2018, which is when Pfizer sold 4 the drug back to -- back to Tris in September 2018. 5 So even though Texas, once they knew about 6 these issue continued to pay for the drug, continued to 7 authorize the payment for the drug, even though the 8 product was safe and effective, and was never withdrawn 9 from the market, Texas is here saying, nope, they 10 violated the law. They have to give back all of the 11 money. 12 They have not alleged the specific conduct 13 at issue in this case, adulterated the product, as 14 intended by the TMFPA, which is designed to prevent, 15 rightly so, the Texas Medicaid program from being 16 defrauded and paying for defective product. 17 That is not the case here. Texas 18 continued to pay for the drug because it was safe and 19 effective, and that's why we're here today asking Your 20 Honor to dismiss this case in its entirety. 21 I think we're just going to hear from 22 our -- do you want to -- 23 MR. HOWELL: Go to the mic? 24 THE COURT: It's up to you. It doesn't 25 matter. I mean, I can hear you fine from there or if you

37

1 want the podium. I just know that I'll get my ass chewed 2 out if I let you move that other one. It's happened -- 3 MR. HOWELL: Yes, I was told that was 4 non-negotiable. 5 THE COURT: It is. At this point, I have 6 no butt left, so go ahead. 7 MR. HOWELL: I promise to be brief, Your 8 Honor. Barrett Howell here on behalf of Tris Pharma, and 9 may it please the Court. 10 THE COURT: Yes. 11 MR. HOWELL: We're here to quickly add a 12 few extra points to Tris Pharma's motion to dismiss and 13 notice of enjoinder to Pfizer's motion to dismiss insofar 14 as Pfizer is moving to dismiss the only cause of action 15 that's asserted against Tris. 16 And just as a procedural point, Your 17 Honor, even though there's two defendants that -- well, 18 three defendants that have been sued, one is Ketan Mehta, 19 the CEO of Tris. We're not here on his behalf because, 20 as the Court may know, his -- 21 THE COURT: Right. 22 MR. HOWELL: Yeah, stay pending appeal. 23 THE COURT: Right. 24 MR. HOWELL: We're just here talking about 25 Tris.

38

1 THE COURT: Okay. 2 MR. HOWELL: The single cause of action 3 that the State alleges against -- against Tris basically 4 accuses Tris of causing false claims to be paid to Texas 5 Medicaid for payment of Quillivant because Tris allegedly 6 knew at the time that Quillivant was adulterated. 7 The term -- as -- as Ms. Badlam has 8 explained, the term adulterated for purposes of this 9 action means that Tris was not in compliance with FDA 10 required current good manufacturing practices. 11 Absent anywhere in the State's petition or 12 response to either of our motions to dismiss is any 13 indication as to which CMPG (sic) Tris is alleged to have 14 violated, unable to point to any particular CMPG that 15 Tris allegedly violated. 16 What the State does is try to bootstrap 17 this March 2018 FDA letter that Ms. Badlam referenced in 18 which the FDA said that Tris's methods, facilities, or 19 controls for manufacturing, processing, packing, or 20 holding do not conform to CMPG. 21 Bootstrapping onto the FDA's CMPG finding, 22 which could mean packing, holding, do not conform to any 23 manufacturing process, doesn't give any indication as to 24 what it is Tris did that caused the State's alleged 25 violation or the cause of action asserted against it.

39

1 So unable to point to any specific rule, 2 law, or CMPG that Tris allegedly failed to comply with, 3 the State attempts to salvage its pleading flaw by 4 referring to Tris's modification of its internal testing 5 procedure for Quillivant. 6 The change in methodology, according to 7 the State, is what rendered Quillivant adulterated. Not 8 because it was ineffective, not because it was 9 compromised, but because the change in the method and the 10 testing methodology was not timely reported to federal or 11 state agencies. 12 So, in other words, the State's 13 adulterated argument comes down to and is premised on an 14 alleged failure to timely notify or timely disclose the 15 modification change to Texas Medicaid. 16 Nowhere, however, will you find any 17 allegation that Tris had a duty to disclose, update, or 18 even communicate with Texas Medicaid. In fact, Tris 19 never communicated with Texas Medicaid regarding 20 Quillivant. There was no duty to. 21 And the State's inability to allege that 22 Tris had a duty to communicate with Texas Medicaid, much 23 less update Texas Medicaid about its internal control 24 methodology modification forecloses both as a matter of 25 law, and, in fact, the State's ability to prove that Tris

40

1 violated the single section alleged against it, which is 2 36.0027. Therefore, this Court should dismiss Tris with 3 prejudice from this case. 4 Thank you, Your Honor. 5 THE COURT: Mr. Bonilla -- 6 MR. BONILLA: Can we get the cable for 7 the -- thank you. 8 THE COURT: During your argument, Mr. 9 Bonilla, I do need you to answer -- I would like an 10 answer to that question of why the State continued to pay 11 if they believed fraud was committed and it remained on 12 the PDL, please. 13 MR. BONILLA: Certainly, Your Honor. 14 THE COURT: And I'll have a couple other 15 questions, but you may proceed. 16 MR. BONILLA: Thank you. 17 So I just want to say at the outset that 18 our response addresses each of these points in detail, 19 so, you know, I'll have that. 20 I just want to put that out there that 21 this is mostly nothing new, I'll say, with one exception, 22 and that's kind of the question that you just asked 23 about, which would, to my understanding, go to the 24 element of materiality. 25 At no point in their -- in either of their

41

1 motions did they challenge our cause of action based on 2 the element of materiality. It's just not part of this 3 issue, this motion, and so we would object to the 4 addition of that challenge to the causes of action. 5 To the point that you just asked for, I 6 think on this idea that the State knew but continued 7 paying for the drug, I think it's a disingenuous 8 argument. 9 The allegations only go into 2018. That's 10 the scope of our lawsuit, and what they're trying to say 11 is some implication that we knew for this long time 12 period and continued paying regardless. 13 The -- the issues of the quality 14 control -- the quality control issues for Tris were not 15 disclosed previously to the State, and, you know, once 16 the State knew, we investigated. We filed a lawsuit. 17 Here we are. 18 To the extent that counsel is trying to 19 suggest that there are ongoing issues with Quillivant, we 20 would be interested to know that. It's my understanding 21 that these issues are not ongoing. 22 So continuing on now. So this is a case 23 about whether Tris and Pfizer caused claims to be made 24 for their adulterated schedule two ADHD medication 25 Quillivant and whether Pfizer made false statements to

42

1 Texas Medicaid, which allowed it to receive the benefit 2 of Quillivant's inclusion on the Texas Medicaid formulary 3 and to receive unfettered reimbursement from the Medicaid 4 program and ultimately damaging the integrity of the 5 Medicaid program in the process by interfering with its 6 decision making authorities. 7 Our case is brought under the Texas 8 Healthcare Program Fraud Prevention Act, formerly known 9 as the Texas Medicaid Fraud Prevention Act, or TMFPA. 10 That's how we refer to it in the pleadings just by nature 11 of when the unlawful acts occurred focused solely on the 12 Medicaid program here. 13 The statute is designed to protect the 14 people and the public by shielding the Texas Medicaid 15 program from providers, including drug manufacturers who 16 seek to defraud it. 17 This statute has its own set of unlawful 18 acts, each with their particular statutory elements. I 19 don't think it's accurate to call this strict liability. 20 You have to meet the elements. They are certainly 21 different from common law fraud. 22 Texas Medicaid is jointly funded by the 23 state and federal governments to distribute the extremely 24 limited dollars for vital health care for our State's 25 most vulnerable citizens, and just by way of example, the

43

1 majority of Texas Medicaid recipients are children. 2 Before going further, I'd like to take a 3 few moments to talk about how the Texas Medicaid program 4 works to illustrate how defendants' conduct affected the 5 integrity of the program and its decision making. 6 So federal Medicaid law requires each 7 state to set up an administrative and fraud controls to 8 administer their Medicaid programs, so it's set up at a 9 federal level, and then states kind of have some freedom 10 on how they handle the Medicaid program through their 11 state. 12 In Texas for out-patient drugs, which is 13 what we're talking about here, that's Vendor Drug 14 Program, which we'll commonly refer to here as VDP. 15 Pursuant to the federal mandate, VDP set 16 up an application system to have drugs added to the Texas 17 Medicaid formulary, and Texas law also established the 18 DUR board and P&T committee to further control Medicaid 19 utilization. 20 So this leads to the VDP application, 21 which defendants have talked about a bit now. This is a 22 state law requirement that the VDP application is 23 required to get inclusion on the Medicaid formulary. 24 That's how reimbursement for a drug is authorized through 25 this application.

44

1 This application includes descriptive 2 information about the drug, requires submission of the 3 FDA approval letter, FDA label, and, importantly, 4 requires manufacturers to sign a certification. 5 The reason for the certification is 6 because the Vendor Drug Program is staffed by just a 7 handful of public servants charged with administering the 8 formulary, the Medicaid formulary, of over, you know, 9 10,000 drugs. 10 VDP is completely dependent on 11 manufacturers to give truthful and complete information 12 about their drugs. They don't have the resources to go 13 and chase down manufacturers and investigate each one. 14 They're also dependent on manufacturers telling the truth 15 on these applications and on the certification so that 16 they can perform their federally required oversight 17 function. 18 THE COURT: Are you saying that when they 19 signed this in January of '13 that they had that 20 information available? 21 Because what I saw earlier was it came up 22 in June and September, six and eight months after they 23 signed the application, so -- 24 MR. BONILLA: Yes, we will -- we'll get 25 there, but there's two responses to that.

45

1 The first response is that the application 2 includes not just a certification that the product is not 3 in violation, but it includes an ongoing duty to 4 supplement if there's a change of certain information, 5 including the product status. 6 It's the State's position and as pleaded 7 that product status includes, as herein described, as -- 8 as defendants point out, includes everything on the 9 application, including the certification itself, and part 10 of that product status would be that the product is not 11 in violation of federal or state law, so -- 12 THE COURT: Are you saying they didn't do 13 it within the 15 days, or that they didn't do it at all? 14 MR. BONILLA: They did not do it at all. 15 THE COURT: All right. 16 MR. BONILLA: So that was -- that's our 17 first response to that. 18 The second response is, as we will show 19 you, there are portions of the pleadings that do allege 20 that Tris was having -- that Tris was having issues with 21 their dissolution testing, that they failed to thoroughly 22 investigate these issues as they were required to, and 23 that Pfizer was aware of this the entire time. 24 So VDP for their part can reject 25 incomplete or untruthful applications, in which case

46

1 their drug would not be placed on the formulary. VPD can 2 also review applications to determine whether to place 3 restrictions on the drugs out of concern of safety, 4 efficacy, or cost effectiveness, and in extreme cases, 5 VDP can request removal of the drugs from the Texas 6 Medicaid formulary. 7 THE COURT: Did they do this at any point 8 on this drug? 9 MR. BONILLA: They did not, Your Honor. 10 Again, that relates to the timing of the allegations. 11 THE COURT: All right. 12 MR. BONILLA: Switching to the DUR board 13 and P&T committee, they were also established pursuant to 14 federal and state law to monitor and control utilization. 15 The boards can -- it's the DUR board in 16 particular -- can establish reimbursement restrictions 17 called clinical edits that tell how reimbursement can 18 occur for certain drugs to limit its uses. 19 The P&T committee monitors the preferred 20 drug list, which allows certain drugs to be used without 21 prior authorization. 22 In carrying out these functions, these 23 committees review clinical information and receive 24 testimony from drug companies and individuals from the 25 community.

47

1 So this case alleges several unlawful acts 2 concerning defendants' drug Quillivant. Plaintiffs seek 3 civil remedies and penalties for these unlawful acts, and 4 there are several different categories of unlawful acts 5 in the case. 6 Against Pfizer, the drug's owner, who had 7 responsibility for promotion of the drug during this time 8 period, plaintiffs allege they made misrepresentations to 9 the Medicaid program in the form of a false certification 10 to VDP on the application, as well as testifying to the 11 Medicaid boards and failing to disclose that Quillivant 12 had manufacturing issues affecting its potency, which 13 could cause issues for patient safety and the drug's 14 efficacy. 15 Against both Tris and Pfizer, plaintiffs 16 allege that they caused Medicaid claims to be made for a 17 product that was adulterated, which is an independent 18 violation of TMFPA, Unlawful Act 7C, and this is where it 19 starts to get complicated. 20 Adulteration is not defined in the TMFPA, 21 but regarding pharmaceuticals, it has a specific meaning 22 under state and federal law. For instance, 21 USC 351A, 23 part of the Federal Food and Drug and Cosmetic Act, lists 24 out the ways in which a product can be adulterated, 25 including failure to follow current good manufacturing

48

1 process regulations -- practice regulations, the CGMP's. 2 As alleged in this case, Tris, the 3 manufacturer of Quillivant, was having trouble 4 manufacturing the drug. Specifically early on, the 5 product was failing these mandated quality control 6 dissolution testing, which is to ensure that the drug was 7 essentially releasing its ingredients as it was supposed 8 to within required standards. 9 And this is a proxy for determining 10 whether patients in taking the drug would be receiving a 11 proper dose of the drug if taking it according to the 12 approved directions, which is to say was the drug that 13 was being made now meeting the same standards as when FDA 14 first approved it. Here the answer was no. 15 But instead of fixing the manufacturing 16 process that was causing these problems, Tris began 17 modifying the test itself in the sample preparation 18 methods, and this became a trend at Tris, changing the 19 test method until they could get passing results on their 20 quality control tests, all while keeping Pfizer in the 21 loop of these changes. 22 Pfizer and Tris say the test methods can 23 and do change, and while true, there is a proper way of 24 doing that, and that process was ignored in this case, 25 and you certainly can't use the changing of the testing

49

1 method as a way of getting your product into compliance. 2 And I'll just add on there this is not 3 just a trivial violation. FDA itself found it to be 4 problematic when they issued their warning letter. 5 Here, once FDA became aware that Tris had 6 changed its test method, it issued a warning letter 7 citing violations of CGMP and ordered Tris to revert back 8 to the last approved method from back in -- I believe it 9 was 2012. 10 As Pfizer noted, FDA involvement is 11 important. They are the ones who found Quillivant to be 12 adulterated, and the TMFPA in its unlawful acts does not 13 require FDA to revoke the drug for it to be an unlawful 14 act. The question, as we'll see in a moment, was the 15 product adulterated. 16 All the while this was going on, Tris was 17 releasing its adulterated product to Pfizer. Pfizer was 18 promoting it throughout Texas, and patients in Texas were 19 picking this up at the pharmacy. 20 Additionally, Pfizer, in applying to VDP 21 to obtain Quillivant's inclusion on the formulary, 22 falsely certified that it was not in violation of federal 23 and state law and falsely certified that it would update 24 VDP as to any change in product status. 25 And these lies allowed Pfizer to receive

50

1 the benefit of formulary inclusion. At no point did 2 Pfizer inform the DUR board or P&T committee of the 3 ongoing issues which further allowed Pfizer to avoid 4 additional utilization controls. 5 Now, taking a step back a few points on 6 the relevant law here, Tris's motion and most of Pfizer's 7 motion challenge the State's claims as to having no basis 8 in law. I think one of Pfizer's challenges goes to no 9 basis in fact, at least that we could tell because they 10 used the language of a reasonable person. 11 For deciding a 91A like this, the Sixth 12 Court's opinion in Shire is precedential, and it says to 13 find a no basis of law, the claim must be foreclosed as a 14 matter of law because either, one, the causes of action 15 in the petition are not recognized by Texas law or, two, 16 the causes of action are recognized, but the plaintiff 17 has alleged facts that defeat those claims under settled 18 law. 19 At the outset, this is not a case where 20 the cause of action is unrecognized. The TMFPA has been 21 around for a few decades now, and nowhere do defendants 22 say that the State has alleged facts that defeat its 23 claims under settled law, as the Shire court requires. 24 Pfizer does try to say that we allege 25 facts that defeat our own claims, and in doing so, what

51

1 they are essentially saying is that they dispute the 2 conclusions that we come to, specifically with regard to 3 the meaning of the VDP certification and whether their 4 drug was adulterated. 5 You heard some of that just a while ago. 6 That is not proper. They have to take the pleadings as 7 alleged. If there is a legal dispute on it, you know, 8 that is something they can point to a settled law. They 9 don't do that here. 10 And the Shire court continues, thus a 11 defendant cannot obtain dismissal under 91A on the 12 pleadings where the defendant merely alleges the petition 13 omits one or more allegations necessary to state the 14 claim because this type of defect does not render 15 recovery on that claim legally impossible. 16 And here's, I think, the main issue is 17 that most of these are really just saying we don't plead 18 adequately. The Shire -- the Sixth Court in Shire says 19 that is not proper for 91A motion. Under this precedent, 20 this type of 91A motion to dismiss can be denied without 21 even getting to the underlying issues. 22 But to the extent we are here talking 23 about fair notice pleading in Texas, the question is 24 whether plaintiffs have provided adequate notice of the 25 elements to allow an opposing attorney to ascertain the

52

1 nature of the claims, basic issues, and relevant 2 testimony, and even omitting an element is not fatal 3 where facts can be reasonably inferred from what is 4 stated. 5 For no basis in fact, you look at whether 6 a reasonable person can believe the pleadings. Doesn't 7 even matter if it's likely, just whether it's believable, 8 and this is noted by the court in Long v Long to merely 9 be a point of contention due to be easily met. 10 THE COURT: All right. I agree with you 11 on that, Mr. Bonilla, and I -- this question is probably 12 out of -- the wrong hearing for that. But shouldn't the 13 State at some point be required to give notice as to 14 which CGMP that they had violated? 15 I mean, she indicated it's not stated in 16 any -- anywhere in the petition. Shouldn't they be 17 required to do that at some point? 18 MR. BONILLA: We will get to that in our 19 presentation, and that's actually very much untrue that 20 we don't indicate CGMP -- 21 THE COURT: All right. Continue. 22 MR. BONILLA: And, finally, various Texas 23 state court decisions made clear that 91A is not analyzed 24 in the same manner as the federal 12B6. Additionally, 25 Texas does not have a heightened pleading standard for

53

1 fraud, and the Sixth Court in Shire specifically rejects 2 application and opposed strongly applying 12B6 case law 3 to 91A. 4 And so moving then to the presentation, 5 defendants challenge that the State did not adequately 6 plead a CGMP violation. This is the first challenge of 7 their four under 36.0027C, and this one goes to both 8 Pfizer and Tris. 9 Not adequately pleading under the Shire 10 precedent, this is not, again, a proper 91A challenge. 11 The elements that we're looking at here, knowingly 12 causing a Medicaid claim for a drug that has been 13 adulterated are the development provisions. 14 There's a few more possibilities, but 15 we're just focusing on the adulteration, and here they're 16 challenging that third element, but plaintiffs have 17 provided adequate notice, as the State will show you. 18 Starting with the Pfizer points to a 19 federal FDCA case law to show that, you know, there's a 20 certain way of doing it. There's no authority for the 21 proposition that the federal FDCA case law is applicable 22 to a TMFPA claim here, and specifically the third prong 23 of TMFPA, unlawful act 7C, and so that just -- there's no 24 authority for that. 25 So defendants challenge the adulteration

54

1 element. Instead of trying to prosecute FDCA 2 adulteration, all we're doing here, we're saying that the 3 State is pleading the drug was adulterated, and part of 4 that is that the FDA itself found the drug to be 5 adulterated. 6 Additionally, plaintiffs did outline the 7 CGMP issue and articulated the conduct through which 8 defendants violated the CGMP, so defendants' entire 9 foundation for this challenge is false. 10 In this example, we have in paragraphs 21 11 to 23 cite to various provisions of the 21 CFR part 211, 12 including 211.22A. This is quoted in our petition 13 talking about the responsibilities of the quality control 14 unit, which FDA later found lacking in their regulatory 15 letters. 16 We cite 21 CFR 211.192 in paragraph 21, 17 which talks about production control records. FDA found 18 this one lacking as well in its later regulatory 19 documents. 20 And then, importantly, -- and this is 21 really key throughout this entire case -- is in paragraph 22 22 we cite 21 CFR 211.192, which requires thorough 23 investigations of unexplained discrepancies, and this is 24 what the FDA ultimately cited in their warning letter as 25 saying that -- that it caused Quillivant to be

55

1 adulterated. 2 So these are cited there, in addition to 3 21 CFR 211.198 relating to patient complaints. The CFR 4 there references back to the thorough investigation 5 provision we just went over. 6 Later in the petition, we have citations 7 to the FDA letters where they were calling out the 8 various deficiencies of Tris in their letter to Tris, 9 including the quality control unit, lack of 10 responsibility. That's going out to the first CFR we 11 looked at. The -- the procedures were not followed. 12 These are the very same CFR's we just 13 looked at. FDA found these to be lacking after their 14 investigation. FDA found Tris's test method changes to 15 be improper as well in their drug and master file 16 deficiency letter. 17 And then, finally, FDA issued a warning 18 letter to Tris in 2018 finding Quillivant to be 19 adulterated. In this letter, FDA, as you can see there, 20 specifically noticed the finding of adulteration was 21 based on 21 CFR 211.192. 22 So as the question you just asked, it 23 is -- it is untrue that we did not provide this 24 information in pleading our claims. All this was plainly 25 cited in the petition and should be more than sufficient

56

1 to answer defendants' questions about the relevant CGMP's 2 at issue. 3 But as an abundance of caution, in our 4 response, we provided substantial details relating to the 5 quality control failures. I don't think we need to go 6 through each one of these specifically. They're all 7 cited in the response, but we have pulled out all these 8 portions of the petition. 9 The bottom line is that defendants failed 10 to thoroughly investigate their quality control failures 11 for Quillivant, patient complaints as well, and that led 12 to CGMP violations and ultimately adulteration, and this 13 is the meat of our case against Tris and Pfizer. 14 Because not just for dissolution testing, 15 it covers -- again, there's a lot -- particle size 16 testing; and like I say, we also, you know, wrap 17 everything up at the end of each section and say that 18 because of all this conduct we just talked about, 19 defendants failed to conduct the investigations into the 20 root cause. 21 I mean, it's -- it doesn't cite the CGMP 22 here granted, but it does use the language that mirrors 23 the CGMP, so there's no question what is being talked 24 about. 25 Particle size testing, very similar

57

1 layout. We lay the conduct out that shows that these 2 investigations were lacking, and the particle size issue 3 was something that was going on and on throughout the -- 4 the -- several years during these -- this time that they 5 were having manufacturing issues. 6 And at the end, defendants' failure to 7 investigate the specification test results constitutes an 8 ongoing violation. It's this failure to investigate 9 properly, and this continues for lack of compliance. We 10 have a similar layout here as well. 11 The State has, therefore, adequately 12 pleaded facts to permit defendants to put forth a defense 13 on the issue of adulteration for Quillivant. 14 So the second part of this -- this 15 challenge to 360027C relates to the issue of lack of 16 authorization and materiality for -- just for this 17 particular section, not everything in general, as -- as 18 was discussed earlier. 19 You know, again, they point to In Re: 20 Xerox. It talks about the plain language of the statute. 21 They said that they were trying to bring the TMFPA in 22 conformity with federal statutes, and the Xerox court 23 actually addressed that, too, when it made the comment 24 that the TMFPA and the False Claims Act, while they have 25 some similarities between them, they use materially

58

1 different language. 2 And this one in particular, 360027C, is a 3 good example of an unlawful act under the TMFPA that is 4 materially different from the False Claims Act because 5 the -- the False Claims Act does not have an unlawful act 6 for causing a claim to be made for an adulterated 7 product. 8 This is a very unique cause of action 9 under Texas law, and it simply does not exist under the 10 False Claims Act, so I'm not sure how we're trying to 11 square that away, but the -- you know, the Xerox court 12 says that you presume that the legislature did what they 13 did for a reason. 14 We obviously know the legislature can 15 write materiality and authorization like they did in 16 3600271. The use those words. Those are elements of 17 that unlawful act. Here they chose not to, and -- and 18 Xerox says we have to respect that, and Pfizer is 19 essentially asking you to change the law, and the State 20 would oppose such. 21 And this is not second guessing a decision 22 to pay by Medicaid. This is conduct squarely fitting 23 within an independent unlawful act that Pfizer and Tris 24 violated. 25 Moving on now to their second challenge,

59

1 which goes to the falsity of the false statements, this 2 is for 3600214B, and it relates to Pfizer only. For the 3 next three of these, it's Pfizer only. 4 So Pfizer challenges plaintiffs' 5 allegations on Pfizer's false statements on the VDP 6 application, and this is the one that appears to be at 7 least partly as to no basis in fact. 8 So, first, as we saw the -- as you saw 9 earlier, the certification includes not just that there's 10 no violation at the time, but there's a promise to update 11 Medicaid, and failing to provide that update renders 12 false certification and VDP application. 13 So that's -- that's the first part of it, 14 that it's not just at this point in time, but that there 15 is an ongoing duty. 16 The second part of it is that it is, in 17 fact, untrue that the State doesn't allege any facts as 18 to how Quillivant was adulterated prior to the VDP app, 19 and -- and you can see some examples of that here. 20 Paragraph 44 talks about these issues even 21 prior to FDA approval when Tris was struggling to achieve 22 consistency with their drug. Almost immediately after 23 FDA approval, and prior to the VDP application, 24 Quillivant was -- began failing these quality control 25 tests again.

60

1 So these are additional issues from 2 paragraph 49, and the pleadings continue, rather than 3 seeking to understand why the samples formed lumps during 4 reconstitution, Tris retrained its analysts, and the 5 pleadings state that put simply Tris's meager retraining 6 was insufficient to prevent further out of specification 7 dissolution test results. 8 This is an improper and lacking 9 investigation along the lines that the CGMP says you do. 10 So Tris's response to this October 2012 dissolution test 11 failures was insufficient. 12 Now, there's other parts in the petition 13 that would refer back to these CGMP's. The evidence 14 shows that Pfizer was there with them when Quillivant was 15 adulterated starting in 2012. This is not conclusory 16 whenever it gets taken in conduct -- in context, rather, 17 because Pfizer was aware of these. You saw in paragraph 18 64 that Pfizer's counsel showed you. 19 She didn't show you that Pfizer -- that 20 when it was talking about those was -- was the -- the 21 issues with the dissolution testing difficulty, meaning 22 the test site, I believe is the exact language that 23 Pfizer was aware of that. This is what we're talking 24 about. This was the difficulty right here, that Tris was 25 retraining instead of investigating the root cause.

61

1 So paragraph 64 that Pfizer pointed you to 2 is a call back to the -- with context, this is what it's 3 talking about, the October 2012 issues. Pfizer was in 4 the loop on those. 5 So next Pfizer challenges the meaning of 6 product status on the VDP application. They say that 7 this is a self-defeating fact. Pfizer cites no settled 8 law to say that this forecloses a claim based on the 9 self-defeating fact. Shire court says that's a 10 requirement for dismissing under 91A. 11 There's no settled law here. Pfizer just 12 wants to -- to pick a definition for it and -- and not 13 allow plaintiffs to -- to be able to obtain discovery 14 on -- on the definition. 15 They should -- they're allowed to get 16 discovery on the issue, but we can't just cut it off 17 because they say it has a different meaning than what we 18 say. That's a dispute. 19 Pfizer also ignores in this section that 20 the certification refers to compliance with state and 21 federal law that we talked about earlier, so the as 22 herein described language is not contradictory because it 23 is -- the application itself is part of what is being 24 certified to. You can't just parse it out and say that 25 this only applies to certain sections. Herein described

62

1 is the entire application. 2 And so I'll also say on the issue of the 3 timing of adulteration that we had looked at, so this was 4 the one about a reasonable person, the State submits that 5 because of the -- the full pleadings that -- that we lay 6 out on this issue, that it is absolutely possible for a 7 reasonable person to believe that Quillivant was 8 adulterated prior to the VDP application. 9 But, again, we also suggest that that's 10 not a requirement because of the ongoing duty, and, 11 therefore, these were false statements on the VDP 12 certification. 13 And that takes us to 36002 sub two, which 14 relates to concealment. This is another challenge that 15 goes to the adequate pleading of our claims, and the 16 Shire court says that this should be rejected outright. 17 So Pfizer says the State cites no 18 regulation or law to show the obligation to disclose and 19 that there's insufficient facts to show dissolution 20 testing, comprised safety and efficacy during Pfizer's 21 disclosure to the Medicaid boards. 22 The elements of 36002 sub two are listed 23 up there, scienter concealing information permitting an 24 unauthorized benefit. Pfizer in their motion talks about 25 the word obligation and looks to the TMFPA definition.

63

1 It's worth noting that in 36002 sub two, 2 the word obligation does not appear there, so as it's 3 defined in the TMFPA, it's not part of this unlawful act. 4 It was Pfizer who tried to write it into the statute, 5 but -- but that should be kept out of it. 6 We're looking at just these three 7 elements, and specifically their challenge appears to go 8 to the third element about someone receiving an 9 unauthorized or greater than authorized benefit. 10 In other words, whether the concealment 11 affected authorization for a Medicaid benefit or a 12 payment, if it did, then the TMFPA says it was an 13 unlawful act. 14 As pleaded in the petition, the VDP 15 application creates a requirement of disclosure to the 16 mandatory certification. The VDP application's 17 requirement of disclosure extends to the ongoing duty to 18 submit changes to product status. 19 Again, we're talking about this several 20 times now. This was something that Pfizer had to do to 21 get their drug reimbursable with Texas Medicaid, and it 22 is something that they did do. 23 And Pfizer failed to provide the required 24 update to VDP regarding the product status, which 25 permitted Quillivant to receive the benefit of continued

64

1 formulary inclusion and unrestricted reimbursement. 2 Regarding the DUR board, P&T committee, 3 they make decisions on safety, efficacy, and cost 4 effectiveness, and if they don't have the full 5 information presented to them, they cannot effectively 6 implement their reimbursement tools. Pfizer's 7 concealment deprived them of this federally-mandated 8 ability. 9 The DUR board receives information from 10 drug makers and expects it to be truthful in order to 11 carry out its duties, and that's pleaded at paragraph 38. 12 Pfizer chose to make presentations to the 13 board but withheld this very relevant information about 14 the failing quality control tests, the manufacturing 15 issues. It prevented the boards from carrying out 16 utilization of their duties. 17 And this -- this permitted Pfizer to 18 receive the benefits they otherwise would not have been 19 authorized to receive, that unrestricted reimbursement 20 for Quillivant. 21 And to the extent Pfizer says it had no 22 duty to disclose information to the board, Pfizer 23 contradicts itself in the second part of this challenge 24 where it acknowledges it does have the duty to disclose 25 information on a drug's safety, efficacy, and cost

65

1 effectiveness, but they switched positions there and 2 argued that plaintiffs didn't plead the quality control 3 issues had such an impact. 4 We address this more fully in response, 5 but due to the various quality control failures, 6 insufficient investigations, Pfizer, through Tris, 7 basically was unable to say whether their patients were 8 receiving proper doses of Quillivant when they took it, 9 which itself raises red flags of safety and efficacy. 10 They couldn't do that because the tests 11 were being altered because they weren't investigating the 12 manufacturing process. This was information that would 13 have been important for Medicaid decision makers to know, 14 as it's pleaded in the petition. 15 And, lastly, on the topic of scienter, 16 Pfizer alleges that plaintiffs failed to plead that 17 Pfizer acted with requisite scienter through the Eighth 18 Court in the Maloof case. 19 The question is, was -- did the party know 20 the relevant facts but did not care about the result, and 21 we submit here per our pleadings that Pfizer did know the 22 relevant facts and did not care about the results here. 23 In other words, Pfizer didn't have to know 24 that Quillivant was adulterated. The question is did 25 they have the relevant information about Quillivant yet

66

1 still undertake conduct that violated the TMFPA, and it 2 all points the answer here is yes. 3 They knew of these issues very early on, 4 October 2012, and instead of addressing the issues early 5 on, it falsely certified to VDP. They continued to cause 6 claims to be made for this adulterated product, and then 7 it failed to update Texas Medicaid either VDP or the 8 boards. 9 So, yes, as the pleadings will show, as 10 listed out in our response, we have a bunch of slides on 11 it here, it's the same as the response that Pfizer did 12 know early on, but did not uphold its duty as it should 13 have. 14 MS. BADLAM: Your Honor, may I just 15 respond to just a few key points? 16 THE COURT: Yes, ma'am. 17 MS. BADLAM: Thank you. 18 THE COURT: Would you -- he indicated you 19 didn't address materiality in your motion. 20 MS. BADLAM: Your Honor, yes, we did. It 21 starts on page 32. Materiality is a -- a theme of our 22 motion. It relates to -- it's a -- a driving theme in 23 our motion. You can see it there. It starts on page 32. 24 Specifically it's under introduction. It's -- it's 25 throughout. That point I did want to address.

67

1 I also wanted to address the certification 2 point and what is alleged in the petition because you'll 3 see that plaintiffs put a number of the paragraphs up on 4 the screen. They all talked about Tris. 5 The certification was Pfizer's 6 certification, so they have to allege that Pfizer knew of 7 the conduct. They can't just say that Tris did it and 8 then somehow impute that knowledge to Pfizer. They have 9 to allege that. 10 I also wanted to focus on product status. 11 Product status, we're not making up the meaning of 12 product status. It says product status is herein 13 described, and there's certain sections specifically on 14 product status within the VDP application itself. 15 Also, there is some guidance on what 16 product status means both in FDA documents and actually 17 in HHSC documents. HHSC, there's a specific document 18 that uses the term product status and refers to drugs, 19 FDA approval status or classification, which is -- 20 mirrors what's in the VDP application itself. 21 The -- the adulteration piece I just 22 wanted to touch upon quickly. So what -- what they 23 showed you on the screen -- and it's in the petition -- 24 is in the background section there's a number -- they 25 basically cite 21 CFR part 211, which is all of the regs

68

1 at that specific section, and they just start citing 2 different CGMP regulations. 3 What they don't do -- and you can actually 4 see it in the -- in the paragraphs Mr. Bonilla put up on 5 the screen. They don't actually cite which regulations 6 relate to the given sections and how the conduct actually 7 violated those given regulations, and that's the problem 8 with how that's pled. 9 Mr. Bonilla said numerous times that 10 this -- this matter is about failure to investigate. The 11 failure to investigate is the meat of their case; right? 12 Not safety and efficacy, not how the drug worked, not how 13 it had an impact on safety; right? 14 And they're saying that we're trying to 15 change the law. We're actually arguing that they're 16 trying to change the law. They're trying to use a fraud 17 statute to say that a technical CGMP violation related to 18 investigation somehow makes the product defective and 19 needs to be withdrawn from the State of Texas. 20 A number of our arguments -- there's a lot 21 of talk about the Shire case. The bottom line is that 22 their causes of action are foreclosed as a matter of law. 23 We're not arguing about facts. We 24 understand take all the facts as true. But even when you 25 take the facts as true, they are foreclosed as a matter

69

1 of law. 2 We talked about the timing problem with 3 the VDP application as one of the issues and also about 4 the authorization particular issue, which is the cause of 5 action based on disclosure. 6 That entire provision is based on the idea 7 that had Texas Medicaid known about the issues, they 8 would have revoked authorization, which they did not. I 9 know you asked Mr. Bonilla about that specifically to 10 begin with. 11 The issues were public in 2018. This was 12 a very public issue; right? It was out there in the 13 public. It was in papers, and it was on FDA warning 14 letter. This was out there, yet Texas did not revoke 15 authorization. 16 I think those are the main -- the main 17 points that I wanted to make. I think, you know, one 18 through three -- the causes of action one through three 19 are foreclosed as a matter of law. 20 We allege adulteration is not pled. It is 21 not clear. It is not -- it's not clear what specific 22 CGMP regulations apply to the sections, how we violated 23 those regulations, and then the big question -- and it's 24 a big question -- is what that means in the materiality 25 piece in this whole case.

70

1 Can you say that conduct technical CGMP 2 violations that have no impact on the product safety and 3 efficacy is a basis for our fraud action? We would argue 4 no. This is just a gotcha case. 5 Thank you, Your Honor. 6 THE COURT: Mr. Howell. 7 MR. HOWELL: Just very briefly, Your 8 Honor. 9 As -- as Mr. Bonilla made clear, the 10 entire -- the State's entire case against Tris relies 11 upon information provided in and certifications required 12 in the VDP application. 13 So absent a VDP application by Tris, the 14 State's case against Tris and the alleged failure to 15 investigate, which is a violation of current good 16 manufacturing practices, falls apart. 17 And the fact of the matter is Tris 18 never -- Tris never submitted. Tris never signed a VDP 19 application. Tris never made any certifications with 20 respect to Quillivant. 21 So absent that document and absent those 22 obligations, the State really cannot -- it's factually 23 legally impossible for the State to allege, let alone 24 prove, that Tris violated the section they are asserting 25 they violated.

71

1 Thank you, Your Honor. 2 MR. BONILLA: May I respond? 3 THE COURT: Yes, sir, Mr. Bonilla. 4 MR. BONILLA: Just real quick as to the 5 Tris itself, we have only one unlawful act against Tris, 6 which is 360027C. 7 It's not related to false statements on 8 the VDP application. It's just the adulteration causing 9 claims to be made from an adulterated product. That has 10 no -- no involvement of the VDP application there because 11 it's not talking about false statements at all. 12 To the extent that materiality is -- we're 13 talking about materiality, she pointed to -- opposing 14 counsel pointed to page 32, which is specific to 15 36.0027C, the adulteration section, unlawful act, which 16 does not have a materiality standard. 17 So if that's what she's talking about and 18 when she talks about materiality, you know, understood, 19 my understanding from her argument earlier was that it 20 was a broader materiality argument related to payment by 21 Texas Medicaid being authorized or not. Again, that is 22 not any portion of 360027C, and that's the one where the 23 Xerox case says you look at how the statute is written, 24 and you interpret it as such. 25 We do cite the specific adulteration --

72

1 the CGMP provisions that we showed earlier. Those are 2 cited as footnotes. It very clearly lays out the conduct 3 at issue. 4 Just wanting to go back, you know, this is 5 fair notice pleading. We're not having to prove our 6 entire case here. It's just are they on notice of the 7 basic issues that we're talking about here of their 8 defenses of testimony that will be relevant. 9 This is -- fair notice pleading in Texas 10 is a low bar, and I think the very fact that we're having 11 this conversation shows that they are -- they submitted a 12 very lengthy response that details all the issues at play 13 here. I think we're -- we're all on the same page as to 14 what this case is about. 15 And then the product status issue, you 16 know, they -- they point to different context. They 17 don't point to a definition of product status in the VDP 18 application. It might be subject to two different 19 interpretations. It's our understanding that product 20 status includes whether a drug was in violation of 21 federal or state law, and that's how we pleaded in this 22 case. 23 And then the relationship between Tris and 24 Pfizer, we do point to some things that Tris did the 25 evidence itself shows, and we've pleaded that Pfizer was

73

1 right along there with them understanding these things. 2 They were partners in this -- this drug 3 manufacturing and promotion. They kept each other in the 4 loops. Pfizer had a person on the inside at Tris's 5 plant, and they certainly knew what was going on, even 6 prior to the VDP application. 7 Thank you. 8 MS. BADLAM: Your Honor, my last point, 9 and I promise I'll stop. 10 It's just page two of our motion. We 11 have -- we do have a materiality argument. It 12 specifically says indeed despite the public nature of 13 conduct underlying the allegations of petition, including 14 an FDA warning letter to Tris on March 26th, 2018, that 15 was widely reported in the press and more than a 16 three-year investigation by the attorney general's 17 office, the Texas Medicaid has never removed Quillivant 18 from the preferred drug list since it was officially 19 added in 2014. It's consistently paid for prescriptions 20 of the product. 21 MR. BONILLA: I mean, that's not a 22 challenge to any particular cause of action. That's 23 background. 24 THE COURT: All right. Have you each 25 filed your orders in both these cases?

74

1 MR. BONILLA: Yes, Your Honor. 2 MS. BADLAM: Yes, Your Honor. 3 THE COURT: Okay. I didn't have them in 4 my queue. I can see the motions themselves, but -- 5 All right. Then I will get you a ruling 6 before the end of the week. 7 MR. BONILLA: Thank you, Your Honor. 8 MS. BADLAM: Thank you, Your Honor. 9 THE COURT: If there's nothing further, 10 you are excused. 11 MR. HOWELL: We have one more motion to 12 dismiss, a cause of action that's Cause No. 23-1030. 13 THE COURT: All right. I guess we'll 14 proceed with that. 15 MR. HOWELL: This one is much, I think, 16 less complicated. I'm the only one who is on this one. 17 So switching gears, Your Honor, now 18 we're -- we're on Cause No. 23-1030, and this hearing is 19 on Ketan Mehta's 91A motion to dismiss, him individually, 20 from the case. 21 This case is about alleged actions or 22 inactions of Tris with respect to compliance with 23 regulatory provisions that even the State concedes are 24 applicable exclusively to drug manufacturers like Tris, 25 but not to individual executives of drug manufacturers

75

1 like Mr. Mehta. 2 So as we're going to go through all of the 3 duties, obligations, certification requirements, that the 4 State alleges were violated, to the extent that they were 5 violated, they could only have been violated by a drug 6 manufacturer, which would be Tris, but not by an 7 individual. 8 So as we'll discuss in more detail, the 9 State's own allegations and concessions make it facially, 10 legally, and factually impossible for the State to 11 sufficiently plead, much less prove, either of the two 12 causes of action asserted against Mr. Mehta. 13 And there's three causes of action total, 14 two of which are asserted against Tris and Mr. Mehta, one 15 of which is asserted just against Tris. 16 So just some brief background that I think 17 will be short, but will be helpful, Mr. Mehta founded 18 Tris Pharma in 2000, currently serves as the company's 19 chief executive officer. 20 Mr. Mehta has dedicated his entire 21 professional career researching and developing cutting 22 edge pharmaceutical products. 23 Tris, which is headquartered in 24 Mr. Mehta's home state of New Jersey, is a privately-held 25 biopharmaceutical development company committed to

76

1 developing and delivering effective and unique therapies 2 to any patients suffering from, among other things, but 3 primarily Attention Deficit Hyperactivity Disorder or 4 ADHD. 5 Today Tris employees over 500 people, and 6 importantly, even though it's been in business for 25 7 years, Tris has never been accused of selling -- 8 producing or selling a contaminated or tainted drug. 9 It's never received a single complaint about any of its 10 product being contaminated or tainted, Dyanavel or 11 otherwise. 12 In addition, despite the State's 13 allegations, Texas has never removed Dyanavel from its 14 Medicaid formulary or, as we discussed the importance of 15 in the prior hearing, the preferred drug list. 16 So we're not here today, Your Honor, 17 because of patient harm or potential patient harm, 18 whether in Texas or elsewhere. Instead, plaintiffs 19 complain about the branding and labeling of one of Tris's 20 ADHD drugs, which is Dyanavel XR. 21 It's an extended release oral suspension 22 amphetamine-based medication that's designed to gradually 23 release the active drug ingredient over the course of a 24 day so that a patient can take a dose one time in the 25 morning and then not have to worry about remembering or

77

1 being distracted by taking additional doses throughout 2 the course of the day. 3 The essence of plaintiffs' complaint is 4 that Tris promoted Dyanavel as having a 30-minute onset 5 when the FDA approved label stated that Dyanavel had a 6 60-minute onset. 7 For purposes of Mr. Mehta's motion to 8 dismiss, however, it is absolutely irrelevant what Tris 9 failed to say or -- or said about Dyanavel's onset time 10 because the basis of any cause of action asserted against 11 Mr. Mehta relies, again, on certifications and duties and 12 obligations that are incumbent exclusively upon drug 13 manufacturers, not on individuals such as Mr. Mehta. 14 Plaintiffs do not and cannot sufficiently 15 allege either of the causes of action against Mr. Mehta 16 because, one, the State concedes that -- and we'll walk 17 through it. The State concedes that all the rules, 18 regulations, and statutes that plaintiffs claim were 19 violated apply exclusively to drug manufacturers and drug 20 companies, which Mr. Mehta is not. 21 The State also concedes that Tris did not 22 begin to promote Dyanavel's 30-minute onset until after 23 Tris had received a clinical research study that 24 substantiated the 30-minute onset, that Tris then 25 provided the clinical study and its results to Tris's

78

1 Promotional Review Committee to decide whether the 2 30-minute onset could be included in Tris's -- Dyanavel's 3 promotional materials. 4 And I think it's important to note, Your 5 Honor, that Mr. Mehta may be the CEO, but when it comes 6 to deciding what information can be included in any of 7 the Tris drug promotional materials, that authority is 8 exclusively onto the Promotional Review Committee. 9 The PRC decides whether a piece of 10 information can be included or excluded, and in this 11 case, the PRC took a look at the study that had been 12 conducted, the test results from it, and decided that it 13 approved including the 30-minute onset in the Dyanavel 14 promotional materials. 15 Finally, plaintiffs -- plaintiffs don't 16 make a single allegation as to what Mr. Mehta did. Mr. 17 Mehta is separate from Tris, but what Mr. Mehta did that 18 would give rise to or even remotely relate to the causes 19 of action asserted against him. 20 So, again, so the two causes of action 21 that the State asserts against Mr. Mehta claim that he 22 knowingly made or caused to be made false statements to 23 Texas Medicaid in applying for Dyanavel's inclusion on 24 the Vendor Drug Program formulary and during Texas 25 Medicaid utilization review and referred drug list

79

1 processees. 2 Yet, the plaintiffs specifically state 3 that defendants, not Mr. Mehta, but that defendants 4 falsely certified that Dyanavel was not in violation of 5 federal law and that Tris would update Texas Medicaid as 6 to any change in Dyanavel's product status. 7 Secondly, the State alleges that Mr. Mehta 8 knowingly made, caused to be made, induced, or sought to 9 induce, the making of false statements or 10 misrepresentations of material fact. 11 And, here, plaintiffs claim that, again, 12 during the Vendor Drug Program application process, 13 defendants, not Mr. Mehta, but defendants falsely 14 certified that Dyanavel was not in violation of federal 15 or state law and that Tris, not Mr. Mehta, but Tris would 16 update Texas Medicaid as to any change in Dyanavel's 17 product status. 18 Plaintiffs' claims are implausible on 19 their face because Mr. Mehta did not and legally could 20 not provide the certification relied upon by the State 21 because Texas Medicaid requires and will only accept 22 certifications from drug manufacturers or drug companies. 23 In fact, we saw -- when we put the VDP 24 application up there on the last hearing, it says at the 25 very top it is -- it's the drug manufacturer that's

80

1 providing the information and certifying to continue to 2 provide updates to the extent necessary. 3 This is why nowhere do plaintiffs allege 4 what Mr. Mehta, as opposed to and distinct from Tris, but 5 what Mr. Mehta did or failed to do that gives rise to 6 either of the two causes of action the State alleges 7 against him. 8 The State complains that at the time Texas 9 added Dyanavel to its Medicaid formulary and Preferred 10 Drug List, Dyanavel's FDA approved label stated that 11 Dyanavel's onset time was 60 minutes, but that the 12 defendants, again, not Mr. Mehta, the defendants promoted 13 Dyanavel's onset time as 30 minutes. 14 At the same time, the States acknowledges 15 that shortly after Dyanavel was approved by Texas 16 Medicaid, Tris commissioned a clinical study, the results 17 of which Tris received on March 21, 2017, that showed 18 statistical significance of Dyanavel's 30-minute onset. 19 Now, the important -- the important point 20 here, Your Honor, is that Tris did not begin promoting 21 30-minute onset until after three things had happened, a 22 clinical study that provided statistical substantiation 23 of 30-minute onset was provided to Tris. 24 Tris provided that to its -- to its 25 Promotional Review Committee. The Promotional Review

81

1 Committee approved including the 30-minute onset data in 2 Tris's promotional -- I'm sorry -- Dyanavel's promotional 3 materials. 4 Mr. Mehta had nothing to do with any part 5 of that process. Mr. Mehta is the CEO, so, you know, the 6 State can allege that ultimately the buck stops with him, 7 but that doesn't give rise to a legally cognizable cause 8 of action. 9 The State further acknowledges that 10 Tris -- Tris did not begin promoting the 30-minute onset 11 until May 2017, so that's after the -- that's after all 12 of the other actions have been taken, the study had been 13 concluded, and the PRC had approved including the 14 30-minute onset data. 15 What the State tries to do is take issue 16 with the type of clinical study based upon which Tris's 17 Promotional Review Committee approved the 30-minute onset 18 data, and here the State claims that the study is somehow 19 invalid because it only showed statistical significance 20 based on a subjective component, but did not show 21 statistical significance based on an objective component. 22 Now, if you take a look at the NIH 23 descriptions of the two types of tests that are being 24 talked about, there's absolute inherent subjectivity 25 in -- in either one of them because short of being able

82

1 to crawl into, you know, the central nervous system of 2 one of the test subjects and observe firsthand when the 3 drug begins to take effect, what we're relying on is 4 observers, some teachers, lab technicians, watching in 5 this case children and evaluating when they think the 6 drug is beginning to take effect, marking that, and then 7 that's the basis of -- of the onset determination. 8 So under either test, there's inherent 9 subjectivity, but the fact that the tests are subjective 10 does not in any way, shape, or form give rise to a cause 11 of action under the Texas Medicaid Fraud Prevention Act. 12 So the State's two causes of action 13 against Mr. Mehta are precluded and foreclosed both 14 legally and factually by plaintiffs' own allegations and 15 concessions. 16 The State repeatedly refers to Tris and -- 17 and Mr. Mehta as the defendants throughout the petition 18 and in its response, but fails to ever explain even to a 19 degree that would satisfy the -- the -- Texas' liberal 20 notice of pleading standard what Mr. Mehta, as opposed to 21 Tris, did that would give rise to either of the two 22 causes of action. 23 Secondarily, Your Honor, plaintiffs cannot 24 establish liability as to Mr. Mehta because, as I 25 mentioned before, the State concedes that any alleged

83

1 duty to report, disclose, or certify any of the 2 information regarding Dyanavel was an obligation 3 incumbent exclusively upon Tris, the drug manufacturer. 4 For example, the State recognizes that in 5 order for a drug to be included in Texas' Medicaid Vendor 6 Drug Program formulary, the drug company or manufacturer 7 must file an application with the -- the Vendor Drug 8 Program. 9 The State concedes that the Texas Medicaid 10 requires drug manufacturers to include certain 11 information in the VDP application. 12 The State further acknowledges that Texas 13 Medicaid requires drug manufacturers to certify that all 14 the information provided in the application is correct 15 and that the drug is not in violation of federal or state 16 law. 17 Finally, the State concedes that by 18 submitting the VDP application, drug manufacturers accept 19 an ongoing duty to timely notify Texas Medicaid of 20 certain changes to the information contained in the VDP, 21 and the State alleges -- the State even explains that 22 manufacturers owe a continuing duty to Texas Medicaid to 23 supplement the information. 24 None of those obligations are incumbent 25 upon Mr. Mehta. They are exclusively the obligations of

84

1 the drug manufacturer, which in this case obviously would 2 be Tris. 3 The State, therefore, has conceded that 4 the relevant -- that the relevant reporting and updating 5 certification duties and obligations that are incumbent 6 exclusively upon drug manufacturers have nothing to do 7 with any obligation of Mr. Mehta. 8 Fatal to plaintiffs' causes of action 9 against Mr. Mehta is the fact that none of the duties, 10 again, render Mr. Mehta -- and the State does not allege 11 any action or inaction by Mr. Mehta that gives rise to or 12 quite frankly even relates to the causes of action -- the 13 two causes of action asserted against him. 14 Lastly, the State acknowledges that Texas 15 Medicaid continuously monitors and manages its drug 16 formulary through the Texas Drug Utilization Review 17 Board, and in order to fulfill their duty and oversight 18 function, the DUR board frequently receives information 19 from drug manufacturers, including defendants, and I'm 20 quoting from the petition. 21 The State alleges that DUR board 22 frequently receives information from drug manufacturers, 23 including defendants. Here, plaintiffs have sued two 24 defendants, Tris and Mr. Mehta. One of them is obviously 25 a drug manufacturer, Tris. One of them is not, Mr.

85

1 Mehta. 2 Yet here the State groups them together 3 claiming that they are both drug manufacturers, and, 4 therefore, have the exact same reporting duties and 5 obligations under the Texas Medicaid formulary and VDP 6 application. 7 The Texas Medicaid -- the drug -- the Drug 8 Utilization Review Board very well may have received 9 information from Tris, but it never received any 10 information from Mr. Mehta, nor did it ever have any 11 communications with or correspondence with Mr. Mehta. 12 The Court should, therefore, disregard all 13 of the State's allegations that attempt to impute to Mr. 14 Mehta the duties and obligations that apply exclusively 15 to drug manufacturers, such as Tris. 16 And in conclusion, Your Honor, I will 17 recognize that a Rule 91A motion is infrequently granted, 18 but here it seems difficult to imagine a scenario in 19 which dismissal, at least as to Mr. Mehta, could possibly 20 be more warranted. 21 Based on the meandering conclusory at 22 times self-contradicting nature of the allegations as to 23 Mr. Mehta, for example, where he's referred to as a drug 24 manufacturer, it would seem as if plaintiffs decided 25 almost as an afterthought to include him as an individual

86

1 defendant. 2 The practical reality, Your Honor, is that 3 including Mr. Mehta as an individual defendant adds 4 nothing to the State's case, just as dismissing him takes 5 nothing away from the State's case. 6 The State's case is against Tris. 7 Plaintiffs' petition relies entirely on Tris's actions or 8 inactions, and every regulatory or statutory provision 9 alleged to have been violated could only have been 10 violated by Tris, not by Mr. Mehta. 11 The State's own allegations and 12 concessions, therefore, render it legally and factually 13 impossible for the State to sufficiently plead, let alone 14 prove, either of the two causes of action is asserts 15 against Mr. Mehta. We request, therefore, that this 16 Court dismiss Mr. Mehta with prejudice. 17 Thank you, Your Honor. 18 THE COURT: Mr. Bonilla. 19 MR. BONILLA: Thank you, Your Honor. 20 THE COURT: I will tell you, Mr. Bonilla, 21 I had a hard time -- I sided with you on the special 22 appearance, but I had an issue with this, so I thought 23 this was against farther pharmaceutical companies, so 24 proceed, please. 25 MR. BONILLA: Sure, yes. And -- and we

87

1 will explain that. 2 So the -- the second case is about whether 3 Tris and its CEO Ketan Mehta caused to be made false 4 statements to Medicaid for their other schedule two ADHD 5 drug Dyanavel, allowing it to receive the benefit of 6 inclusion on Medicaid formulary and unfettered 7 reimbursement, which is similar to what we had just 8 talked about. 9 So this -- this is a case about false 10 statements made to Medicaid both at the decision makers 11 and its Medicaid providers. We also talk about direct 12 misrepresentations here to the Medicaid providers around 13 Texas, and it's similarly -- similarly brought under the 14 TMFPA. 15 So earlier I outlined the background of 16 the Medicaid program. For purposes of this case, that is 17 all the same. I'm not going to go over it again. 18 The one exception is that the P&T 19 committee got rolled into the DUR board, so the DUR board 20 at this point in time controls the PDL as well. 21 So at issue here, plaintiffs have alleged 22 that Tris's CEO Ketan Mehta caused several categories of 23 false statements to be made, and this includes the VDP 24 certification, the false statements to the DUR board, and 25 then those direct misrepresentations to Medicaid

88

1 providers in violation of 36002 one and 4B. 2 And now the key here, the -- the word that 3 I wanted to focus on there that I think answers at least 4 some of your questions is that this is -- this is caused 5 to be made. 6 Under the TMFPA, you can make a 7 misrepresentation or you can cause to be made a 8 misrepresentation. We would assert that if Tris were 9 here, we would be talking about Tris making the 10 misrepresentations. 11 For Mr. Mehta, under the statute, which is 12 part of the unlawful acts for both one and 4B, he's 13 causing these to be made through his actions at Tris, and 14 so that's the key that I think was missed on -- on 15 opposing counsel's opening. 16 Specifically, the CEO Mehta, in effort to 17 differentiate and gain market share for his companies, 18 then new product, the ADHD drug Dyanavel, which is a 19 pediatric amphetamine, he personally pushed for Tris to 20 start using these false statements in their marketing of 21 DXR, Dyanavel. 22 And, again, this is the key here within 23 our -- our pleadings, which we'll get to in a little bit. 24 You know, he is the CEO. Tris is a relatively small 25 pharmaceutical company compared to other CEO's.

89

1 I don't know much about Pfizer. They're 2 much larger. I don't think their CEO is in the trenches, 3 you know, working with product messages and studies and 4 so forth. Here Mr. Mehta was doing that. He's -- 5 THE COURT: What does the State gain by 6 having him in the lawsuit, Mr. Bonilla? 7 MR. BONILLA: It -- you know, I don't 8 think that we necessarily have to justify why he's in the 9 lawsuit for purposes of this motion. 10 THE COURT: I understand that. I just -- 11 I'm looking down the road here. I mean, if his 12 conduct -- you're still going to discuss his conduct or 13 present it to the jury if the case moves forward. It's 14 going to be his conduct on behalf of the company. I 15 mean, I -- 16 MR. BONILLA: Understood. The allegations 17 about Mr. Mehta's conduct are what lead to this issue 18 that we're talking about. He was the one pushing for 19 these misrepresentations to happen, and we feel that the 20 way that he was pushing his conduct to go through Tris, 21 using his leverage as CEO to get these messages included 22 in the core visual aid, that -- that this was 23 significant, his role in this case. 24 THE COURT: All right. 25 MR. BONILLA: And these false statements

90

1 included broad claims of the 30-minute efficacy, 2 30-minute onset, which means, in effect, that Dyanavel 3 start working twice as quickly as it is indicated to 4 work, which would give it a leg up over all the 5 established drugs already in this space, including 6 Quillivant. 7 And it would help them gain market share 8 in the process, and there were also claims of efficacy 9 that are included in the petition, including improving 10 patient functionality and helping patients reach their 11 full potential. 12 Both Mehta and Tris, though, knew that 13 these were not true claims. Yet they had their sales 14 force trained on and deliver this messaging to doctors 15 throughout Texas, including Medicaid doctors, causing the 16 drug to be misbranded under the FDCA. 17 That's the other difference here. Before 18 we were talking about adulteration. Here we're talking 19 about misbranding. It has its own set of CFR's and 20 unlawful acts and FDCA that we will take a look at. 21 There's a number of ways that you can 22 misbrand a drug, having labeling that is untrue in any 23 aspect is one way. Disseminating false advertisements 24 about the drug is another way, and both of those were in 25 play in this case.

91

1 And, finally, Mr. Mehta caused false 2 statements to be made in testimony to the Texas Medicaid 3 DUR board in violation of the law. 4 So, again, going to the legal standards 5 here, very similar as last time. You know, I'll bring up 6 the Sixth Court's opinion in Shire relating to 91A that 7 this -- says that when we're talking about inadequate 8 pleading, that is not a legal impossibility. 9 Every one of Mehta's challenges here seeks 10 to dismiss the State's claims for insufficient pleading, 11 and you can see that on page three where he outlines one 12 through four of the challenges they're making. 13 Plaintiffs failed to plead facts 14 sufficient. It is common between all of those. The 15 Shire court says you can't do that with a 91A, and that's 16 enough to defeat the motion. 17 Simply put, the State's case here is not 18 the type of baseless case that 91A seeks to keep off the 19 court's dockets. Otherwise, standards are very similar 20 as before with fair notice pleading. 21 So going to the first point that Mehta is 22 not a liable party for purposes of the causes of action, 23 that sounds like that's kind of saying that he didn't 24 cause these claims to be -- these false statements to be 25 made. Mehta -- that there's insufficient allegations to

92

1 show that Mehta, as opposed to Tris, caused the false 2 statements to be made. 3 We don't need to look to the federal 4 standards here. They cite the federal -- federal cases 5 on their -- their pleadings. The Texas Fair Notice 6 Pleading Standard just asks for the basics issues of the 7 controversy and relevant testimony. That's In Re: 8 Allstate case. 9 And at a high level, the allegations here 10 show that Mehta himself, CEO Mehta, was the driving force 11 behind the false statements to doctors, as well as 12 getting Dyanavel added to the Medicaid formulary, and 13 that is what's pleaded in the petition and what was not 14 presented on the opposing counsel's introduction. 15 The State's allegations plainly point to 16 Mehta as causing the false statements to be made to 17 Medicaid decision makers, too, that the CEO Mehta was 18 directing this to happen to get the drug on formulary. 19 This time it was Tris submitting the 20 application, as opposed to last time it was Pfizer. 21 Again, Mehta is a hands-on CEO, was involved there as 22 well. This is in the pleadings. 23 Submission of the VDP certification was 24 false the statement to Texas Medicaid caused by CEO 25 Mehta, and the false statements to the DUR board, which

93

1 are described in detail elsewhere, are also linked to 2 Mehta in the petition. 3 THE COURT: You need to wrap it up, 4 please, Mr. Bonilla. I've got another hearing at 3:30, 5 so -- 6 MR. BONILLA: Oh, my apologies, Your 7 Honor. 8 So regarding the false statements 9 delivered by Tris sales reps, the State alleges that 10 Mehta had his hand in the process throughout, and this is 11 where we did a number of allegations in the petition 12 outlining exactly how he did that, by -- by being the 13 cause of these claims to be made, the study itself. 14 He pushed it through the Promotion Review 15 Committee to make sure that it was used. It was his 16 dream, and he wanted to see to it that that got 17 implemented in the field. We also include Mehta's 18 understanding of the study didn't show what they wanted 19 it to, but he was using it anyways. 20 And this is additional details that Mehta 21 pushed the 30-minute onset claims. He's made it into the 22 core visual aid, which sales reps were told to use on 23 every call. 24 And then plaintiffs also give fair notice 25 on the other efficacy claims alleging that Mehta caused

94

1 those to be made as well. 2 While admittedly much of the conduct is 3 directed at Tris, there is sufficient detail to permit 4 Mehta to understand how the State is linking him to these 5 allegations. 6 We're not saying that he's a drug company 7 or that he was the one making the statements. It was his 8 direct that caused these to happen, and we outline that 9 in our petition. 10 And he was this hands-on CEO directly 11 intervening in the company to get what he wanted from the 12 company, and that's how these claims got made. 13 Turning to falsity, which is the next real 14 point of contention here, the -- the argument here is 15 that the -- that the State can prove falsity under 16 this -- the federal standard that is put forth of 17 securities law. 18 The State states that you should reject 19 that and instead look at Texas law for definition of 20 falsity, and the Fourteenth Court of Appeals here says 21 representation is false if it consists of words or other 22 conduct that suggest to the plaintiff that a fact is true 23 when it's not. 24 This accounts for a lesser definition of 25 knowingly, including reckless disregard. In other words,

95

1 saying something is true when you don't have enough 2 information to know it's true can still be a false 3 statement. You don't have to know for sure that 4 something is -- is false. 5 THE COURT: You cited this case in the 6 response to the special appearance. 7 MR. BONILLA: Yes, sir. 8 Sorry, for the special appearance, I don't 9 believe we did. Oh, in this response I believe we did -- 10 or I'm certain we did, rather. 11 So there's two categories of falsity, the 12 VDP certification and the claims of efficacy. There's 13 no -- no citation of civil law suggesting that this is 14 contradictory. 15 Mehta in his motion tries to say that the 16 fact that the -- we describe the study results as mixed 17 means that we can't say that it was a false statement, 18 but really going out and promoting a claim of 30-minute 19 onset, that itself suggests that Tris, at the direction 20 of Mehta, had the proper support to make that claim, 21 which was false, since the study did not prove that 22 claim. 23 FDA said the study was not able to prove 24 that claim even if the study came out completely in their 25 favor, which it did not. This study -- this study that

96

1 we're talking about was insufficient to support a broad 2 claim of 30-minute onset, and so that's how that was 3 false. 4 This -- the study limitations were not 5 conveyed to Texas doctors by the sale force, contributing 6 to the falsity, and then there were the other additional 7 claims of efficacy that were noted as being false by 8 virtue of FDA letters in Tris's possession. 9 They knew this. They promoted those 10 anyways, and through the delivery of these false efficacy 11 messages, Dyanavel became misbranded in violation of 12 federal or state law, and yet no update was provided to 13 Texas Medicaid pursuant to the certification rendering 14 that false in a similar manner that we had talked about 15 before, so the State has adequately pleaded. 16 There were two more challenges to this -- 17 in these cases. I think these two were very -- very 18 simple and self-explanatory, so I'm not going to go over 19 these. 20 But I just want to urge you again, Your 21 Honor, what we're talking about here is not Mehta making 22 statements, but it's causing to be made through his 23 hands-on conduct as the CEO. 24 Thank you. 25 THE COURT: All right. Thank you,

97

1 counsel. 2 MR. HOWELL: Just very briefly, Your 3 Honor. 4 Based on the State's position, any CEO 5 that's, quote, hands on or involved in -- in operations 6 and activities and driving products to market can be held 7 liable under -- under the Texas Medicaid Fraud Prevention 8 Act. 9 I mean, what -- what I hear the State 10 saying is, well, the degree -- it depends upon the degree 11 of the CEO's involvement; right, to determine whether the 12 CEO can be held personally liable. 13 If -- if that's the case, well, then 14 the -- all the members of the PRC could be held liable 15 for approving the 30-minute onset based on what the State 16 claims is a faulty test result. 17 The fact of the matter is the causes -- 18 the two causes of action that the State has asserted 19 against Mr. Mehta are designed and -- and driven towards 20 pursuing drug manufacturers and drug companies. That's 21 why the certifications all refer to drug manufacturers 22 and drug companies. 23 That's why it's Tris's obligation to 24 update VDP if there's any -- update Texas Medicaid if 25 there's any changes in the product, as described in the

98

1 VDP. 2 So, again, Mr. Mehta cannot be held liable 3 under the causes of action asserted against him; 4 therefore, Your Honor, he should be dismissed. The case 5 will go forward. Let's fight it out with Tris. Tris is 6 the one they're after. 7 Thank you, Your Honor. 8 THE COURT: Thank you. 9 MR. BONILLA: Thank you. 10 THE COURT: Thank you again, counsel. 11 With that, if there's nothing further, you 12 are excused. 13 (Hearing adjourned.)

99

1 STATE OF TEXAS )

2 COUNTY OF HARRISON )

3 I, Tammy L. Goolsby, Certified Shorthand Reporter in

4 and for the State of Texas, do hereby certify that the

5 above and foregoing contains a true and correct

6 transcription of all portions of evidence and other

7 proceedings requested in writing by counsel for the

8 parties to be included in this volume of the Reporter's

9 Record, in the above-styled and -numbered cause, all of

10 which occurred in open court or in chambers and were

11 reported by me.

12 I further certify that this Reporter's Record of the

13 proceedings truly and correctly reflects the exhibits, if

14 any, admitted by the respective parties.

15 WITNESS MY OFFICIAL HAND this 14th day of June,

16 2024.

17 18 19 /s/ TAMMY GOOLSBY_____________ Tammy L. Goolsby, CSR 20 Texas CSR 3101, Expires 7/31/25 Official Court Reporter 21 71st Judicial District Court 200 W. Houston, Suite 219 22 Marshall, Texas 75670 Telephone 903-935-8407

Tab B: Order Denying Defendants’ Joint Motion to Amend Previous Orders and Certify for Interlocutory Appeal

23-1031 Filed 10/10/2024 2:38 PM Sherry Griffis District Clerk Harrison County, Texas

Marcia Bayer CAUSE NO. 23-1031 Deputy

THE STATE OF TEXAS § IN THE DISTRICT COURT ex rel. TARIK AHMED § § Plaintiffs, § § v. § 71ST JUDICAL DISTRICT § PFIZER INC., TRIS PHARMA, INC., § And KETAN MEHTA § § Defendants. § HARRISON COUNTY, TEXAS

______________________________________________________________________________

ORDER DENYING DEFENDANTS’ JOINT MOTION TO AMEND PREVIOUS ORDERS AND CERTIFY FOR INTERLOCUTORY APPEAL

CAME ON THIS DAY to be heard in the above-numbered and styled cause Defendants’

Joint Motion to Amend Previous Orders and Certify for Interlocutory Appeal. The Court, having

considered said Motion is of the opinion that it should be DENIED in all respects. It is therefore:

ORDERED Defendants’ Joint Motion to Amend Previous Orders and Certify for

Interlocutory Appeal is DENIED in all respects.

SIGNED this 10 day of Oct , 2024

HONORABLE JUDGE BRAD MORIN

Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Janice Garrett on behalf of Jonathan Bonilla Bar No. 24073939 Janice.Garrett@oag.texas.gov Envelope ID: 92230757 Filing Code Description: ORDER Filing Description: Order denying Ds Jnt MtnAmend Previous ORDSCertify for Interlocutory Appeal Status as of 10/17/2024 8:27 AM CST

Associated Case Party: PFIZER INC.

Name BarNumber Email TimestampSubmitted Status

Edward Burbach 3355250 eburbach@foley.com 9/19/2024 2:38:55 PM SENT

Associated Case Party: THE STATE OF TEXAS

Name BarNumber Email TimestampSubmitted Status

Mary JoToupin maryjo.toupin@oag.texas.gov 9/19/2024 2:38:55 PM SENT

Janice Garrett Janice.Garrett@oag.texas.gov 9/19/2024 2:38:55 PM SENT

Jonathan D.Bonilla Jonathan.Bonilla@oag.texas.gov 9/19/2024 2:38:55 PM SENT

Brittany Peters Brittany.Peters@oag.texas.gov 9/19/2024 2:38:55 PM SENT

Vivian Egbu vivian.egbu@oag.texas.gov 9/19/2024 2:38:55 PM SENT

Jordan Underhill Jordan.Underhill@oag.texas.gov 9/19/2024 2:38:55 PM SENT

Associated Case Party: TARIK AHMED

Name BarNumber Email TimestampSubmitted Status

Jason T.Brown jtb@jtblawgroup.com 9/19/2024 2:38:55 PM SENT

Patrick S.Almonrode patalmonrode@jtblawgroup.com 9/19/2024 2:38:55 PM SENT

Michael E.Jones mikejones@potterminton.com 9/19/2024 2:38:55 PM SENT

E. GlennThames glennthames@potterminton.com 9/19/2024 2:38:55 PM SENT

Associated Case Party: TRIS PHARMA, INC.

Name BarNumber Email TimestampSubmitted Status

Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Janice Garrett on behalf of Jonathan Bonilla Bar No. 24073939 Janice.Garrett@oag.texas.gov Envelope ID: 92230757 Filing Code Description: ORDER Filing Description: Order denying Ds Jnt MtnAmend Previous ORDSCertify for Interlocutory Appeal Status as of 10/17/2024 8:27 AM CST

Associated Case Party: TRIS PHARMA, INC.

Name BarNumber Email TimestampSubmitted Status

Harry L.Gillam gil@gillamsmithlaw.com 9/19/2024 2:38:55 PM SENT

Tom Gorham tom@gillamsmithlaw.com 9/19/2024 2:38:55 PM SENT

Barrett ReidHowell barrett.howell@blankrome.com 9/19/2024 2:38:55 PM SENT

William E.Lawler, III william.lawler@blankrome.com 9/19/2024 2:38:55 PM SENT

Case Contacts

Name BarNumber Email TimestampSubmitted Status

Stefan Schropp Stefan.Schropp@ropesgray.com 9/19/2024 2:38:55 PM SENT

Samantha Barrett Samantha.Badlam@ropesgray.com 9/19/2024 2:38:55 PM SENT

Val Jones val@valjoneslaw.com 9/19/2024 2:38:55 PM SENT

Tab C: Transcript of Motion to Amend Hearing, January 27, 2024

1

1 CAUSE NO. 23-1031 2 THE STATE OF TEXAS ex rel ) IN THE DISTRICT COURT TARIK AHMED )

3 )

vs. ) HARRISON COUNTY, TEXAS 4 )

PFIZER, INC., TRIS )

5 PHARMA, INC., AND )

KETAN MEHTA ) 71ST JUDICIAL DISTRICT 6 7 8 9 ________________________________________

10 MOTION TO RECONSIDER

11 ________________________________________

12 13 14 15 On the 27th day of January, 2025, the following

16 proceedings came on to be heard in the above-entitled and

17 numbered cause before the HONORABLE BRAD MORIN, Judge

18 Presiding, held in Marshall, Harrison County, Texas:

19 Proceedings reported by computerized stenotype

20 machine, Reporter's Record produced by computer-assisted

21 transcription.

1 P R O C E E D I N G S 2 (January 27, 2025) 3 4:20 4 THE COURT: Court's going to call 23-1031, 5 State of Texas versus Pfizer, Tris Pharma, and Ketan 6 Mehta. 7 Announcements for the record, please? 8 MS. BADLAM: This is Samantha Badlam on 9 behalf of defendant Pfizer. 10 MR. GILLAM: Your Honor, Gil Gillam, also 11 Barrett Howell, Bill Lawler, Chris Caudill, and Huaou Yan 12 on behalf of Tris Pharma. We're ready to proceed. 13 MR. BROWN: Good morning, Your Honor. 14 Jason T. Brown from Brown, LLC., on behalf of the 15 relator. 16 THE COURT: All right. 17 MR. UNDERHILL: This is Jordan Underhill 18 on behalf of the State of Texas. 19 MS. PETERS: Brittany Peters on behalf of 20 the State of Texas. 21 MR. BONILLA: Jonathan Bonilla for the 22 State of Texas. 23 THE COURT: All right. 24 MS. EGBU: And Vivian Egbu, State of 25 Texas.

1 THE COURT: All right. 2 MS. BADLAM: There's a couple more people 3 on our side. Stefan Shropp is also for Defendant Pfizer, 4 Ed Burbach for defendant Pfizer, and the esteemed Val 5 Jones, who is on mute, also for defendant Pfizer. 6 THE COURT: Ms. Badlam, it's your motion 7 for reconsideration. 8 MS. BADLAM: Yes, Your Honor. 9 THE COURT: And I have read the -- your 10 case out of Houston, and so I'm aware of the facts and 11 the rulings in that, and you can proceed. 12 MS. BADLAM: Thank you, Your Honor. 13 MR. JONES: Your Honor, -- 14 MS. BADLAM: Go ahead. 15 MR. JONES: Your Honor, if I may, I just 16 want to announce to the Court we also had some time set 17 aside on the injunction matter that was pled, but the 18 plaintiffs re -- amended their pleading and took the 19 injunction out, so that's no longer an issue. 20 THE COURT: All right. That was a 21 question that I had, and I'll get to that in a little bit 22 then. 23 Ms. Badlam. 24 MS. BADLAM: Yes, Your Honor. 25 We have a PowerPoint presentation we're

4

1 going to put on the screen, if that's okay, to help 2 facilitate the discussion. 3 THE COURT: That's fine. 4 MS. BADLAM: Great. 5 So, Your Honor, there's one question in 6 front of the Court today, and the question is whether 7 this Court will certify for interlocutory appeal the 8 question of whether Section 360027C of the Texas Medicaid 9 Fraud Prevention Act requires that the underlying conduct 10 be material to the State's decision to pay. 11 Section 360027C, just to remind us all, 12 says a person commits an unlawful act if the person 13 knowingly makes or causes to be made a claim under a 14 health care program for a product that has been 15 adulterated, debased, mislabeled, or is otherwise 16 inappropriate. 17 The standard for interlocutory appeal in 18 Texas is that first there needs to be a controlling 19 question of law as to which there is a substantial ground 20 for difference of opinion and an immediate appeal from 21 the order may materially advance the ultimate termination 22 of the litigation. 23 The controlling question of law is whether 24 Section 360027C requires materiality to prevent gotcha 25 cases like this one plaintiffs have brought against

5

1 Pfizer and Tris. 2 This case is about current good 3 manufacturing practice regulations. I know we talked 4 about this extensively in our last hearing, Your Honor, 5 the cGMP's, and there are many cGMP's, a number of which 6 are technical foot falls. 7 But under the relevant statutory 8 framework, which is the Federal Food, Drug, and Cosmetic 9 Act, and also the Texas state equivalent, ethical foot 10 falls can still render a product adulterated. 11 Now, plaintiff's position is that a 12 violation of any one of these cGMP's, regardless of what 13 the regulation is or the practical impact, renders the 14 product adulterated and, thus, ineligible for Texas 15 Medicaid reimbursement. 16 Under plaintiff's view, it does not matter 17 whether the underlying conduct is material to the State's 18 decision to pay for the drug. All that matters is the 19 violation happened. 20 So the practical impact is that if a 21 manufacturer violates the cGMP by failing, for example, 22 to get a second signature on a lab report or a procedural 23 document, that can violate a cGMP, and the product is 24 adulterated, and a manufacturer will be in violation of 25 the TMFPA if it doesn't stop seeking reimbursement, even

6

1 if the State Medicaid Board says we'll still continue to 2 pay for it. 3 Defendant's position is that the conduct 4 must be material, that adulteration as used in the 5 statute means conduct that matters, conduct that is 6 relevant to the State's decision to pay. 7 Your Honor, we aren't suggesting to add 8 the word material. Rather, material is implicit in the 9 term adulteration, so that the alleged cGMP violation 10 cannot be one that has no impact to the Texas Medicaid 11 Program's payment decision. 12 Does the violation of any cGMP regulation, 13 no matter the practical effect, give rise to liability 14 under the TMFPA, or does the adulteration need to be 15 material to a payment decision? 16 This question is a controlling issue of 17 law that deeply impacts the ongoing litigation, and the 18 answer to this question takes us on two different paths. 19 Plaintiff's position is that the statute 20 is a strict liability statute where any alleged cGMP 21 violation can lead to liability under the TMFPA. 22 But the Texas Supreme Court in Malouf in 23 June of last year ruled that the TMFPA is not intended to 24 punish technical violations, but it is instead a powerful 25 tool for targeting fraud against the Texas Medicaid

7

1 Program and that as a penal statute, the TMFPA must be 2 strictly construed in favor of the defendant. 3 The Malouf case involved the 4 interpretation of the word "and" in another provision of 5 the TMFPA, and this term "and" is certainly more 6 straightforward than the word adulteration. 7 But, Your Honor, the key takeaway from 8 that case is that the TMFPA should not be read as a 9 strict liability statute, which is defendant's position. 10 Our position is that conduct must be 11 material, must involve something more than technical cGMP 12 violations, because the TMFPA, as quoted in Malouf, is 13 intended to play a crucial role in the State's ongoing 14 efforts to deter, detect, and punish fraud, not to 15 facilitate windfall recoveries based on technical 16 violations that have not affected the State's payment 17 decision. 18 Your Honor, because of course the State 19 would keep paying for our product that patients need if 20 it's just a technical foot fall, but would not pay for a 21 product that is debased, defective, mislabeled, 22 inappropriate in some way. 23 Now, Your Honor, you don't have to agree 24 with us, and I think that's the key point here because 25 today is about certifying for interlocutory appeal the

8

1 question and sending the case to the 15th Court of 2 Appeals. 3 The 15th Court of Appeals, as you know, 4 was created by the Texas legislature to have exclusive 5 intermediate appellate jurisdiction over cases brought by 6 or against the State; and in creating the court, Governor 7 Abbott specifically said that the court was intended to 8 serve a vital role to ensure that state statutes are 9 applied uniformly throughout Texas and that businesses 10 have a sophisticated and official process to resolve 11 their disputes. 12 The decision on how to interpret the 13 adulteration language and the statute will have lasting 14 consequences for Texas and for the Medicaid program, and 15 the 15th Court of Appeals is vested with the exclusive 16 authority to resolve disagreements like this one, and 17 there is substantial ground for disagreement on the 18 controlling question of law. 19 As I've already talked about, the Texas 20 Supreme Court's Malouf decision rejected the State's 21 attempt to recover for technical violations with no 22 practical effect on services or payment decisions, but 23 that is what plaintiffs are trying to do in this case, 24 advocating for an overbroad and incorrect reading so that 25 any cGMP violation can lead to recovery, but that is not

9

1 the purpose of the statute, which is to combat fraud as 2 specifically described by the Supreme Court. 3 And, of course, there is the recent 4 Labcorp case, which plaintiffs say supports their 5 position, but what Labcorp actually does is highlight 6 that there is substantial ground for difference of 7 opinion about whether provisions of the TMFPA require 8 materiality, even when the provision doesn't have the 9 word materiality. 10 In Labcorp, it dealt with a different 11 provision of the TMFPA, but the trial court found 12 materiality, even though the word wasn't there. The 1st 13 Court of Appeals disagreed, but, of course, the 1st Court 14 of Appeals is not binding on this Court. 15 And, importantly, the 15th Court of 16 Appeals that we just talked about had not yet been 17 created when that decision was appealed, and the 15th 18 Court of Appeals is the court that needs to weigh in on 19 this issue. 20 The question concerning 360027C is an 21 issue of first impression, but one that has far reaching 22 implications. The State is increasingly using the TMFPA 23 for gotcha cases, and this issue will continue to 24 surface. 25 So on the final point on whether the

10

1 appeal may materially advance the ultimate termination of 2 the litigation, on this question there is no doubt that 3 clarity on the adulteration provision advances the 4 litigation. 5 I'm going to turn the floor over to 6 counsel for Tris and Mehta in a second, and they will 7 talk about the fact that this cause of action is the only 8 cause of action against Tris and Mehta. 9 For Pfizer, a reading on this issue 10 drastically alters the outcome of this litigation and 11 could terminate the entire litigation or, at the very 12 least, prevent the entire case from being re-litigated. 13 The adulteration claim is the foundation 14 for the other three claims. All four of them turn on 15 alleged cGMP violations and whether those violations need 16 to be more than technical violations of cGMP regulations, 17 and violations that are material to a payment decision is 18 critical to the entire case. It will impact discovery, 19 expert witnesses, summary judgment, pretrial 20 instructions, trial, all of it. 21 If defendants are forced to proceed 22 without clarity, a post-judgment appeal on this issue 23 could require re-litigating the entire case from scratch 24 because a strict liability case is very different than a 25 fraud case.

1 In sum, Your Honor, we meet all of the 2 requirements for you to certify this matter of 3 interlocutory appeal, and I'm going to go ahead and turn 4 the floor over to Tris. 5 MR. HOWELL: Thank you, Samantha. 6 Your Honor, I would just like to add 7 without belaboring the point that the State has alleged 8 four causes of action in its petition. Only one of those 9 causes of action is against Tris or -- or its CEO Mr. 10 Mehta. 11 And just as a side note, the argument that 12 we are presenting today is on behalf of Tris. Mr. Mehta 13 still has an appeal pending before the 15th Court of 14 Appeals, and that was the Court's denial of his motion to 15 dismiss for lack of personal jurisdiction, so, 16 technically, we are here today, Your Honor, only on 17 behalf of Tris. 18 But the point remains the same as to both 19 Tris and Mr. Mehta, that if the Court permits the 15th 20 Court of Appeals to resolve this controlling question of 21 law and the 15th Court of Appeals holds, as we think that 22 it will, that materiality is a required threshold for 23 Section 360027C, that could be case dispositive for at 24 least two of the named defendants in this case, Tris 25 and -- and Pfizer.

1 So -- so that's all I have. I reserved 2 time for the end for questions or rebuttal, if that's 3 okay with the Court. 4 THE COURT: Fine. 5 Mr. Brown, are you arguing? 6 MR. BROWN: No, I'm not. I believe Mr. 7 Bonilla will be arguing or somebody else from the AG's 8 office. I apologize. Thank you. 9 THE COURT: All right. 10 MR. UNDERHILL: I -- I'll actually be 11 arguing on behalf of the State of Texas, Your Honor. 12 THE COURT: Okay, Mr. Underhill. 13 MR. UNDERHILL: Yes. 14 So, you know, to begin with, I do want to 15 refocus the discussion to Rule 168, because that's really 16 what this hearing is on, whether or not this Court will 17 amend its prior orders to allow for a permissive appeal, 18 and so I want to focus on some of the language of 168 and 19 just to draw it to the Court's attention. 20 First I want to mention that Rule 168 uses 21 the word "may" in two important places. It says, A trial 22 court may permit an appeal from an interlocutory order 23 that is not otherwise appealable, and, second, later in 24 the rule it says, A previously order -- issued order may 25 be amended to include such permission.

1 So the reason I say that is because there 2 are these two factors that need to be met for the 3 appeal -- for the order to be amended, but even if those 4 two factors are met, this Court has full discretion to 5 deny that appeal. 6 So another way to read the rule is that a 7 court may only permit the permissive appeal if these two 8 factors are met that need to be outlined in the order. 9 And so I want to go through those two factors and discuss 10 them in a bit more detail. 11 The first of which is that there is a 12 controlling question of law as to which there is 13 substantial ground for difference of opinion. 14 And, you know, the first thing I'll say 15 about this is that it's my understanding of the rule that 16 simply being on opposing sides of an issue isn't enough 17 to meet this threshold that there's substantial ground 18 for a difference of opinion, right? 19 This is litigation. We're obviously going 20 to take opposing views on many issues, but this Court is 21 more than capable of resolving those disagreements, and 22 an appellate court doesn't always need to weigh in when 23 we disagree. 24 You know, what would meet the threshold, 25 perhaps, is if this is a novel issue, an issue of first

14

1 impression, something that there's very little or no 2 authority on that the Court, you know, wants to get 3 appellate help on. 4 And so, of course, defendants argue that 5 this is a novel issue. It's an issue of first 6 impression, and that we really need the 15th Court to 7 weigh in on it, and, you know, what I'd say in that 8 regard is that that's simply not true. 9 You know, the way they frame the issue is 10 that this is a question of whether materiality is 11 required under 36.0027C and that no court has ruled on 12 this specific provision and the question of whether or 13 not materiality is required. 14 And, you know, that's trivially true, you 15 know, just as you could say that about many of the 16 different provisions under the THFPA (sic) and many of 17 the provisions of various statutes. Courts simply have 18 not ruled on all of the available laws in Texas; right? 19 But that's really not what this case is 20 about and what this question is about. What this is 21 really about is the question of statutory interpretation 22 and statutory construction and specifically how courts 23 should read statutes and, more specifically, that courts 24 should not rewrite statute -- rewrite statutes or alter 25 them in a way opposite of legislative intent.

1 And on that particular matter, there's 2 certainly a wealth of authority about how courts should 3 read statutes and specifically that they should look to 4 the plain and common meaning of the text and that a 5 statute is unambiguous. 6 You know, we should not use extrinsic aids 7 or rules of construction to essentially change the 8 meaning of the statute or introduce ambiguity, and that's 9 really the State's position here is this -- the text of 10 36.0027C is not at all ambiguous. 11 If we look at the specific language, the 12 word material is defined in the THFPA. There is a 13 definition for it, and it appears in at least three of 14 the unlawful acts that are enumerated under 36.002. You 15 know, there are several unlawful acts. Material appears 16 in a few of them and not in several others. 17 And 36.0027C is one of those acts that it 18 does not appear in, and that was clearly a deliberate 19 decision by the legislature. If they wanted to include 20 materiality, they very clearly could have included that 21 word in the text. 22 And this is really where the State v 23 Labcorp case is helpful, you know, and just to talk -- I 24 know you've read that case, but just to talk a little bit 25 more about it, obviously it wasn't on permissive appeal,

16

1 so it has nothing to say about Rule 168. 2 But where it is helpful is on the actual 3 substantive arguments the defendants are making regarding 4 reading materiality into the text of the statute where 5 it's not explicitly written, and that case dealt with 6 another provision of the THFPA 36.022 where the defendant 7 Labcorp argued even though materiality didn't appear in 8 the text of section two that the Court should read it 9 into, you know, the provision. 10 And the trial court agreed with defendant, 11 and then on appeal, obviously the appellate court 12 unanimously overturned the trial court, and I think some 13 of the language they used is very helpful because it's 14 completely in line with our position. 15 They say the word material does not appear 16 in the text of Section 36.022. At the same time, the 17 legislature included the word material in the provisions 18 for three other unlawful acts in Section 36.002. 19 The statutory construction requires us to 20 study the language of the specific provision at issue 21 within the context of the statute as a whole and agreed 22 to give a fact to every word, clause, and sentence. 23 And later on they say, you know, the fact 24 that material was used in certain sections and omitted 25 from other sections demonstrates the legislature's choice

17

1 not to impose a material -- materiality requirement in 2 the admission provision, which is what they used to refer 3 to 36.022. 4 And that's exactly our position here. The 5 Labcorp case was decided in the wake of Malouf. It 6 references Malouf, so Malouf did not change the rules of 7 statutory construction. Really what Malouf was about was 8 how to interpret a statute that is ambiguous in certain 9 ways. 10 The Malouf case was not rewriting any of 11 these rules. It was simply applying an existing rule, 12 the rule of lenity, to a portion of the THFPA, which is 13 not at issue here today, that was ambiguous in a certain 14 way, and the Court, you know, strictly construed that 15 section in such a way to the benefit of the defendant in 16 the Malouf case. 17 But, again, it's our position here and has 18 been consistently our position that 7C is not ambiguous 19 in any way, it's not unclear, and so the Court, this 20 Court, any Court, should simply look to the plain text of 21 the statute and read it as it's written, and that's 22 exactly what Labcorp says. 23 So just to bring this all around why we 24 believe there's not substantial ground for a difference 25 of opinion is that this isn't a novel issue. This is

18

1 simply an issue of statutory interpretation, which there 2 is plenty of authority on. 3 And, you know, just to say a little bit 4 more about that, I think it's worth looking at all of the 5 language of 36.0027 because this section enumerates three 6 different unlawful acts. There's A, B, and C, and 7 obviously our claim is only under C. 8 But the word material does not appear 9 anywhere in section seven, so, you know, maybe defendants 10 could make the argument if it appeared somewhere it might 11 be ambiguous what that word modifies or how it applies to 12 the three relevant sections, but it simply is not there. 13 It's omitted, period. 14 What does appear in 36.0027 is the word 15 knowingly, which modifies both A, B, and C. So contrary 16 to, you know, what defendant said, this isn't a strict 17 liability provision. It requires that defendants acted 18 knowingly in distributing the adulterated drug, and we 19 certainly don't contest that. 20 You know, moving forward, I'll go ahead 21 and talk about the second requirement that this 22 materially advances the ultimate termination of 23 litigation. 24 You know, first, as counsel for Tris 25 mentioned, we only assert the 7C claim against Tris, and

19

1 so they make this argument that this could kick out Tris 2 and Ketan Mehta potentially if this went up on appeal and 3 if the appellate court ultimately decided to rewrite the 4 statute in a way that benefited defendants. 5 We certainly don't agree with that. You 6 know, the reason we did not plead materiality in regards 7 to the 7C claim is because the plain text of the statute 8 does not require us to do so, so we did not do something 9 we're not required to. 10 That doesn't mean we couldn't plead 11 materiality if an appellate court decided, no, you know, 12 we're going to rewrite this statute in a way that 13 requires materiality, so we certainly don't agree with 14 the idea that this would just automatically kick out Tris 15 and Mehta. 16 And then Pfizer specifically makes another 17 argument that, you know, we assert three other claims 18 against Pfizer under 36.021, two, and 4B, and they make 19 this argument that our cause of action under 7C basically 20 is the foundation of these other three claims, and we 21 certainly disagree with that. 22 So what I mean by that is the decision 23 regarding whether or not materiality is required by 7C 24 certainly would not affect our other three independent 25 claims against Pfizer.

1 And, you know, I think it's worth pointing 2 out here, too, that 36.021 and 4B already -- they -- 3 they're two of the unlawful provisions that actually use 4 the word material and require us to, you know, 5 demonstrate materiality, and we certainly don't contest 6 that, and the 36.022 was the provision that was the 7 subject of the Labcorp case, which does not require 8 materiality. 9 So, you know, as far as advancing this 10 case towards, you know, some end in regards to Pfizer, we 11 don't agree that a change to 7C by an appellate court 12 would affect, you know, any of our other claims against 13 Pfizer in a way that would make this case resolve 14 quicker. 15 You know, I think ultimately what this 16 comes down to is that, you know, defendants want some 17 court to rewrite the text of this provision in a way that 18 benefits them. 19 You know, I certainly don't blame them for 20 making that argument, but it's our position that any 21 court should read the text solely as it's written without 22 inserting an element that is defined in the statute, but 23 not included in the actual text of this provision. 24 So we don't agree that this is a novel 25 issue or an issue of first impression. You know, this is

21

1 certainly an issue that there's ample authority on and 2 which this Court is more than capable of ruling on as it 3 has already done two times, and so with that in mind, we 4 respectfully ask that the Court deny this motion. 5 Thank you, Your Honor. 6 THE COURT: Mr. Underhill, I mean, that -- 7 that's been my primary -- well, I wouldn't say primary. 8 It was one of my concerns with regard to the -- when I 9 issued the initial order in this, and I think that got 10 confirmed by the fact that the -- there was a motion for 11 summary judgment. I thought this -- I didn't think it 12 would completely resolve everything. 13 You're telling me even if the Court -- if 14 the 15th Court says materiality is required that this -- 15 that I'm still going to have issues that I have to 16 resolve in this case; is that -- 17 MR. UNDERHILL: That's correct. 18 THE COURT: Okay. I thought after the 19 motion for summary judgment, beyond that, so with the 20 injunction out of the question, there are still issues 21 beyond that, and that -- 22 MR. UNDERHILL: Yes, that's correct. You 23 know, the motion for summary judgment that defendants 24 submitted -- well, that Pfizer submitted was related to a 25 very small portion of the case, only related to

22

1 injunctive relief. 2 It wasn't related to the actual other four 3 claims we assert against Pfizer, and we amended our 4 petition to take out the injunctive relief we originally 5 asked for against Pfizer, so that issue is mooted. 6 MS. BADLAM: And, Your Honor, we would, of 7 course, argue that it does -- it can potentially 8 terminate the litigation because whether or not 9 materiality is required is so critical, and the State has 10 not pled materiality, which they actually just admitted 11 that they did not plead materiality. 12 And our position is that they cannot plead 13 materiality because the State continued to pay for the 14 drug even after the State knew -- the State Medicaid 15 Board knew about the alleged cGMP violations. So, I 16 mean, relevant to the payment decision, we -- we would 17 allege that they cannot show that. 18 And, Your Honor, I do -- I do just want to 19 highlight a couple of things really quickly. The fact 20 that the State highlighted the entire -- the entire 21 provision of the TMFPA to look at the conduct, all of the 22 conduct in that provision is conduct that is material to 23 the State's payment decision. 24 Not -- not providing services that were 25 allegedly rendered, defective services. The whole thing

23

1 is about serious conduct where it's the term 2 adulteration. 3 We're not saying to add the word material, 4 but what does the term adulteration mean in the context 5 of the statute? Does it really mean that every single 6 cGMP violation like missing a signature renders the 7 product ineligible for reimbursement? That is the 8 question. 9 Where in Malouf it was about a 10 construction of "and," the State said the term "and," 11 right, was ambiguous, but we're saying adulteration is 12 ambiguous, what it means in the statute when you look at 13 the entire -- the entire context. 14 And knowingly doesn't fix it because 15 knowingly just means that if we were to know that we 16 had -- were missing a signature and we got a 483 from FDA 17 that said, nope, you've violated this reg, so you've 18 adulterated the product, that means that technically 19 wouldn't be able to submit the product for reimbursement 20 in -- in Texas or be in violation of the TMFPA. 21 So the knowingly doesn't fix the problem 22 of the strict liability interpretation that the State is 23 taking, which is contrary to Malouf. Malouf is the 24 ground-breaking decision here that happened after you -- 25 you gave your opinion.

1 You don't have to agree with us. That's 2 not it at all. It's just that there is a substantial 3 difference of opinion, and it does materially advance 4 litigation. 5 MR. HOWELL: Your Honor, if I could add 6 just -- just two additional points to that. 7 I mean, there's -- there's over 60 cGMP's 8 that apply to -- to pharmaceutical manufacturers like 9 Tris, and even the FDA's website says that if a 10 pharmaceutical manufacturer is in violation or not in 11 compliance with a cGMP, that does not necessarily mean 12 that the product is unsafe. I mean, that's from the 13 FDA's public website. 14 So -- so whether there is a -- whether 15 it's material -- whether the violation of the cGMP is 16 material is an issue that needs to be resolved by the 17 15th Court of Appeals. 18 And we've taken the liberty, Your Honor, 19 of preparing an order -- a proposed amended order that we 20 plan to submit to the Court immediately after this 21 hearing that tracks the language and the requirements of 22 Section -- of Rule 168, as well as Texas Civil Practices 23 and Remedies Code Section 54014D, that if -- if the Court 24 considers and is willing to sign will tee the issue up 25 for the 15th Court of Appeals, which, as we've already

25

1 pointed out, has exclusive intermediate appellate 2 jurisdiction over this case. 3 THE COURT: On the issue of payment, I 4 thought that the Court of Appeals in Houston took care of 5 that issue, or at least addressed it, you know, the fact 6 the State continued paying wouldn't be a -- some sort of 7 waiver of the right to make this claim, so, I mean, 8 it's -- I mean, I don't know if that argument seems to go 9 anywhere here. 10 Mr. Underhill? 11 MR. UNDERHILL: Yeah. And can I just say 12 something -- 13 THE COURT: Yes. 14 MR. UNDERHILL: -- additional regarding 15 materiality? 16 Because, you know, defendants keep saying 17 that this has to deal with the State's payment, and I 18 think they're operating under the way material is defined 19 under the False Claims Act, which I'll just read so you 20 see how that definition differs from the definition in 21 the THFPA. 22 So the False Claims Act defines material 23 as having a natural tendency to influence or be capable 24 of influencing the payment or receipt of money or 25 property.

1 Now, the definition of THFPA is actually 2 different. It says material means having a natural 3 tendency to influence or be capable of influencing, 4 period, and that's it. 5 So it's not just about the payment of 6 money, as, you know, the False Claims Act clearly 7 restricts materiality to dealing with the payment of 8 receipt of money, but that's not all that's at stake with 9 the way that material is defined in the THFPA, so I think 10 it's incorrect for defendants to focus solely on that. 11 But as you said, you know, it's not 12 dispositive anyway whether or not the payment -- or the 13 State continued to pay, as, you know, you mentioned the 14 Court in the Labcorp case already addressed. 15 MS. BADLAM: I think that's a great point, 16 that it's actually the conduct itself can actually 17 influence, right? 18 Take the payment part out of it. The way 19 that you read it is the perfect way to sum it -- sum it 20 up, that the conduct itself can actually influence the 21 State in some way, and that's what we're saying has to be 22 a part of the actual case. 23 And as you said -- as was said by 24 plaintiffs, it -- it wasn't pled. That has not been 25 pled, and they don't think they have to plead it. They

27

1 don't think they have to show this at all at trial. 2 So it's such a vastly different case if 3 this is interpreted to mean that any type of cGMP 4 violation can render a product adulterated, even if it 5 doesn't influence the State Medicaid Board. 6 MR. UNDERHILL: And, Your Honor, can I -- 7 sorry. Can I just respond to that quickly? 8 THE COURT: Yes. 9 MR. UNDERHILL: So it's not true that we 10 don't plead materiality. As I mentioned in my argument, 11 we assert four different claims against Pfizer. Two of 12 those claims, 36.0021 and 4B, require us to plead 13 materiality, and so we did. 14 So it's simply not true that we are 15 saying, oh, we don't have to plead materiality at all, it 16 doesn't apply, period. No, we're simply saying that 7C 17 does not requires us to plead materiality. These other 18 claims do, and so we have, and we recognize that we have 19 to demonstrate materiality on those specific claims at 20 trial. 21 THE COURT: Do you agree with Mr. Howell, 22 though, if materiality is an issue, or if the Court 23 determined that, that his client would, in fact, be out, 24 but you would still have your claims against Pfizer? 25 MR. UNDERHILL: I don't agree with that,

28

1 you know, because I think like our position is that 2 requiring materiality under 7C would essentially be 3 rewriting the statute, right, to insert this word 4 material. 5 And so in the unlikely case that that 6 happened, that an appellate court did that, you know, 7 it's my position that -- or the State's position that we 8 could replead our claims against Tris and potentially 9 keep Mehta, assuming he stays in the case, to include 10 materiality. 11 THE COURT: All right. All right. 12 Counsel, I appreciate your arguments. If you'll get me 13 your orders, I plan on having you a ruling by Wednesday. 14 MS. BADLAM: Thank you, Your Honor. 15 MR. UNDERHILL: Thank you, Your Honor. 16 THE COURT: Thank you for your time. 17 You'll be excused. 18 (Hearing adjourned.)

1 STATE OF TEXAS )

2 COUNTY OF HARRISON )

3 I, Tammy L. Goolsby, Certified Shorthand Reporter in

4 and for the State of Texas, do hereby certify that the

5 above and foregoing contains a true and correct

6 transcription of all portions of evidence and other

7 proceedings requested in writing by counsel for the

8 parties to be included in this volume of the Reporter's

9 Record, in the above-styled and -numbered cause, all of

10 which occurred in open court or in chambers and were

11 reported by me.

12 I further certify that this Reporter's Record of the

13 proceedings truly and correctly reflects the exhibits, if

14 any, admitted by the respective parties.

15 WITNESS MY OFFICIAL HAND this 18th day of

16 February, 2025.

17 18 19 /s/ TAMMY GOOLSBY_____________ Tammy L. Goolsby, CSR 20 Texas CSR 3101, Expires 7/31/25 Official Court Reporter 21 71st Judicial District Court 200 W. Houston, Suite 219 22 Marshall, Texas 75670 Telephone 903-935-8407

Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Envelope ID: 98283633 Filing Code Description: Response Filing Description: Plaintiffs' Response to Defendants' Petition for Permission to Appeal with Appendix Status as of 3/11/2025 7:04 AM CST

Associated Case Party: The State of Texas

Name BarNumber Email TimestampSubmitted Status

Jonathan Bonilla 24073939 Jonathan.Bonilla@oag.texas.gov 3/10/2025 4:49:44 PM SENT

Jordan Underhill 24102586 jordan.underhill@oag.texas.gov 3/10/2025 4:49:44 PM SENT

Nadia Burns 24041176 nadia.burns@oag.texas.gov 3/10/2025 4:49:44 PM SENT

Vivian Egbu vivian.egbu@oag.texas.gov 3/10/2025 4:49:44 PM SENT

Associated Case Party: Tarik Ahmed

Name BarNumber Email TimestampSubmitted Status

Earl Thames 785097 Glennthames@potterminton.com 3/10/2025 4:49:44 PM SENT

Patrick S.Almonrode patalmonrode@jtblawgroup.com 3/10/2025 4:49:44 PM SENT

Jason T.Brown jtb@jtblawgroup.com 3/10/2025 4:49:44 PM SENT

Michael E.Jones mikejones@potterminton.com 3/10/2025 4:49:44 PM SENT

Associated Case Party: Tris Pharma Inc.

Name BarNumber Email TimestampSubmitted Status

Harry Gillam 7921800 gil@gillamsmithlaw.com 3/10/2025 4:49:44 PM SENT

Andrew Gorham 24012715 tom@gillamsmithlaw.com 3/10/2025 4:49:44 PM SENT

William E.Lawler, III william.lawler@blankrome.com 3/10/2025 4:49:44 PM SENT

Bobbye Pyke Bobbye.Pyke@blankrome.com 3/10/2025 4:49:44 PM SENT

Huaou Yan huaou.yan@blankrome.com 3/10/2025 4:49:44 PM SENT

Associated Case Party: Pfizer Inc.

Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Envelope ID: 98283633 Filing Code Description: Response Filing Description: Plaintiffs' Response to Defendants' Petition for Permission to Appeal with Appendix Status as of 3/11/2025 7:04 AM CST

Associated Case Party: Pfizer Inc.

Name BarNumber Email TimestampSubmitted Status

Stefan Schropp stefan.schropp@ropesgray.com 3/10/2025 4:49:44 PM SENT

Samantha BarrettBadlam samantha.badlam@ropesgray.com 3/10/2025 4:49:44 PM SENT

Edward Burbach eburbach@foley.com 3/10/2025 4:49:44 PM SENT

George Valton val@valjoneslaw.com 3/10/2025 4:49:44 PM SENT