By Rebecca Wolitz
With multi-million dollar treatments entering the market, prescription drug costs accounting for between 15-17% of healthcare expenditures, and nearly 1 in 4 Americans unable to afford a prescription medication in the past 12 months, it is no wonder that prescription drug costs remain an important topic of national discussion. There has been a flurry of legislative proposals at both the federal and state levels this year, with Nancy Pelosi’s H.R. 3 recently passing the House. And, within the executive branch, HHS just issued its drug importation proposal. Both of these developments have been within the past few weeks; there is a lot going on. Not to mention we are heading into an election year.
For a legislative angle and analysis, Michelle Mello and I have an article forthcoming in January’s Northwestern University Law Review examining ways to address unconscionable drug pricing. For an analysis of HHS’s drug importation draft ruling, I’d direct readers to this thread by Rachel Sachs.
This post will focus on some recent litigation developments. With 2019 now come to a close, I wanted to recap where we are with California’s SB 17 transparency law litigation as well as briefly note two new cases for readers to follow who are interested in drug pricing and access issues.
PhRMA v. David (SB 17 Litigation, Eastern District of California)
As I previously wrote in the fall of 2017, California passed a drug price transparency bill known as SB 17. Among other things, this law requires 60 days advanced notice to certain purchasers for wholesale acquisition cost (WAC) price increases greater than 16%, over two years, for prescriptions with a list price above $40. It also contains reporting requirements both for price increases as well as for new drugs introduced with a WAC exceeding the specialty drug cost threshold for Medicare Part D. In 2019, this threshold was $670 per one month supply of a medication.
The trade association PhRMA sued alleging that SB 17 violated the dormant Commerce Clause, the First Amendment, and the Fourteenth Amendment’s Due Process Clause as void for vagueness. For procedural reasons, Judge Morrison England of the U.S. District Court for the Eastern District of California dismissed this original complaint, and PhRMA filed an amended complaint advancing the same substantive claims. The Government’s motion to dismiss the amended complaint was denied on July 30, 2019 (Dkt. 55).
This means that the case will proceed, but resolution could take a while—as in several years. On November 21, 2019, the Court issued a supplemental pretrial scheduling order (Dkt. 58). According to this order, all discovery except expert discovery must be completed within 365 days of the order (so by November 2020). Then, 180 days after the close of non-expert discovery, the parties need to file their dispositive motions. This puts the filing of those motions somewhere in the Spring of 2021. After the court rules on these motions, the parties could proceed to trial. So, perhaps a trial—if there is one—would begin in the fall of 2021 or winter 2022? It’s unclear.
The parties have filed objections and responses to this proposed timeline. The main contention being whether and what discovery is required for the contemplated motions. PhRMA argues that it intends to file a motion for summary judgment or judgment on the pleadings on threshold dormant Commerce Clause and First Amendment claims (Dkt. 59). It contends that these issues “involve purely legal questions and do not require any further factual development.” In other words, they want the Court to set a timeline without the burden of discovery and speed things up. The State opposes PhRMA’s request. It argues that PhRMA previously raised these issues, and that the Court rejected proceeding that way (Dkt. 60).
In the interim, SB 17 is in effect, and California’s Office of Statewide Health Planning and Development (OSHPD) has released collected information on introduction prices and price increases for Q1 and Q2 of 2019. The public can access summaries of this information as well as download the underlying data.
Among the information collected on introduction prices is “a narrative description of marketing and pricing plans.” Yet, by law, manufacturers are allowed to restrict this information to what is publicly available. (The same applies for price increases.) A look at the data collected shows a range of responses.
For some drugs, this narrative is left blank or states that pricing and marketing information is not in the public domain. Other drugs have brief descriptions. AveXis, for example, provides a short response for its drug Zolgensma: “The marketing for ZOLGENSMA includes promotion to physicians, direct to consumer promotion, and other types of marketing (e.g., educational programs).” Zolgensma, which treats pediatric spinal muscular atrophy, made headlines earlier this year for being introduced with a WAC of $2.1 million dollars. Other manufacturers provided longer descriptions, but, again, because they are limited to what is publicly available, they are not necessarily enlightening. For example, some descriptions state that the list price for an included drug does not reflect discounts or rebates provided to federal programs. Several statements noted that their pricing reflects a discount off of the reference listed drug, and a few companies noted that their prices take into account considerations of or principles involving “value.”
On the price increase side, OSHPD provides several summarizing statistics for 2019 Q1 and Q2 reporting about median price increases. Among them, it found that “the 3-year median percent increase in WAC for all 1076 reports submitted was 25.8%, which suggests an approximate 8% increase in WAC, compounded annually from 2017 through the second quarter 2019.” By contrast, OSHPD notes, inflation for the same period was 2% annually. They also found that less expensive reported generics were the ones experiencing the largest overall median increase—at 130%. Among single source drugs, it was the most expensive category of reported drugs (WAC >$10,000), that experienced the largest median increase at 28.8%.
In the Excel spreadsheet with the underlying data, there are a lot of empty cells when it comes to the information collected about cost increase factors and a description of the change or improvement necessitating the price increase. According to OSHPD, 72% “of the reports did not include any reasons for the reported wholesale cost increases due to the information not already being in the public domain.”
Still, some companies did fill out this information. As with introduction price narratives, there was a range of response styles from terse to verbose. Some, for instance, provided language expressing their societal responsibility and sensitivity to affordability issues while noting that their “pricing will support aggressive investment in the discovery of innovative medicines to treat grievous illnesses.” Several responses across companies referenced vague phrases like “market conditions,” “market dynamics,” or “market factors.” Other responses also noted an increase in the cost of the active pharmaceutical ingredient (API). Interestingly, at least two companies cited “inflation” among their factors. One company used the cost increase factors box as an opportunity to make—what I speculate—they must perceive to be an educational plea:
Our industry is different from almost any other, in that the price for a product often increases over time. That may seem counterintuitive until you realize that drugs are different from cars, computers or clothing. Once we bring a product to patients, that begins another series of investments so we can follow the progress and safety of patients taking the drug, develop better formulations that benefit the patient community, investigate its application to other indications and more. Price increases are what pay for those investments across our industry.
This description is at least paired with a statement that the WAC price increases for their medications “is not necessitated by a change or improvement in the prescription drug”—which is refreshingly candid.
There is more to examine in this collected information, and despite the predictable responses (as well as lack thereof) to specific prompts, SB 17 has generated a valuable public resource.
U.S. v. Gilead Sciences, Inc. (PrEP Patent Litigation, District of Delaware)
While PhRMA v. David pertains to drug pricing transparency, a newly filed lawsuit, U.S. v. Gilead Sciences, Inc., is a patent infringement case.
Since there have already been at least two excellent posts discussing the facts of this case—see here and here, I won’t rehash the details. But, in a nutshell, the federal government alleges that Gilead’s HIV prevention medications Truvada for PrEP and Descovy for PrEP infringe upon four government patents pertinent to these regimes that do not expire until 2027 or 2031. This litigation is a consequence of being unable to reach a resolution out of court.
In an environment in which high U.S. drug prices in general draw public ire for their perceived excessiveness, expensive medications supported by federal funding feels particularly egregious. (Estimates of new drugs receiving federal support vary depending on the metrics, but a recent study demonstrates that about 25% of new molecular entities approved by the FDA have received late stage governmental contributions.) For many, the claim that taxpayers are wronged by “paying twice”—first for the research and development of a medical product, and then through supracompetitive prices to access a subsequently privatized product—resonates.
As I’ve written recently, there is some ambiguity as to the underlying theoretical justifications of the pay-twice critique. On the one hand, the rhetoric of paying-twice reflects concerns about transactional unfairness between the government and private parties. The overriding sentiment being that taxpayers are receiving a raw deal or being gouged. On the other hand, the pay-twice critique appears to reflect a fundamental concern about access to government funded medical products. It just seems wrong that products funded with taxpayer money are unaffordable to those same taxpayers, and the government has an obligation to do better. While considerations of transactional fairness and affordability can overlap, they can also come apart. For instance: mandating that resulting government products be affordable for all who need them might lead to undercompensating private sector collaborators thereby treating them unfairly. And, “fair” monetary renumeration might fall short of providing the access that patient-taxpayers may need or want.
As a patent infringement case, U.S. v Gilead Sciences, Inc. intersects with these innovation policy discussions about appropriate system design, but is not consumed by them. This case is not concerned with what ought to be the connection between government funding, privatization, and ultimate product pricing in the first instance. Rather, as a patent infringement lawsuit, the issue is whether Gilead violated the government’s patents—there is either infringement or not.
If infringement is found, however, the meaty practical and policy questions having to do with remedies will converge with these deeper underlying issues. The government has requested various damages, interest, and royalties. But, what would be done with that money if they win? Some argue that increased access to PrEP by all those who need it in the U.S. should be on the government’s mind in resolving this case. Christopher Morten and Amy Kapczynski, for instance, argue that “the government should use its suit as leverage to force Gilead to lower the price of PrEP, as the New York Times has noted it can. If the government simply takes a royalty but does not negotiate a drastic price reduction, PrEP will continue to strain the budgets of private payers and public agencies that do provide PrEP, and PrEP may remain out of reach of some who need it.”
One issue the case raises that interests me is whether it could help shed light on how to think about and value different kinds of early stage contributions. The complaint alleges several times that Gilead’s contributions to the discoveries of PrEP were basically limited to “drug donations” (see e.g. ¶ 119), and that Gilead’s role was “non-substantive” in government funded trials (¶¶ 126, 152). By contrast, the complaint alleges that the government believed in the possibility of PrEP as a prophylactic when Gilead did not, made the crucial discoveries, and “has spent hundreds of millions of dollars” (¶ 146). Moreover, Gilead relied on these government funded trials to get FDA approval for Truvada. These allegations therefore imply that Gilead’s contributions are minimal in both absolute and relative terms.
Supposing we grant these allegations to be true. Bracketing patent infringement worries, from the lens of parsing fair returns (for lack of a better word) in light of respective contributions, how should we think about the value of Gilead’s drug donations within the larger scheme of things? Is it minor? Further, if one is inclined not to minimize such contributions, this logic would also need to apply when the parties are flipped. Commentators are often dismissive of arguments about federally funded drugs in pricing debates because such contributions are thought to be purportedly early stage and minor. Yet, if one is receptive to the idea that Gilead’s purportedly early stage and minor contributions to discovering PrEP regimens are not actually so minor, these kinds of arguments marshalled against early stage government funding or contributions would need to be revisited.
Finally, on a more nitty-gritty level, it will be interesting to see the relevant terms in the various material transfer agreements with Gilead should the full agreements become available. Gilead’s answer in this suit is due on January 13, 2020.
Association for Accessible Medicines v Becerra (AB 824 Litigation, Eastern District of California)
A final case to very briefly note is the litigation filed on November 12, 2019 by the Association for Accessible Medicines (AAM), the trade association for generic manufacturers, and the same group that torpedoed Maryland’s generic price-gouging law. This time, AAM is challenging California’s AB 824.
AB 824 seeks to address the problematic behavior surrounding “pay-for-delay settlements” occurring within the patent litigation framework provided by the Hatch-Waxman Act. While these settlements can take on different features and structures, the basic premise is that a branded company will pay a generic company to delay entering the market. This delay is worth a lot of money to branded companies and incentivizes lucrative settlements with generics. Thus, the interests of manufacturers are aligned, and aligned at the expense of consumers who would have benefited from the availability of a cheaper generic product, or a reduced-price branded product that now has competition.
A lot of ink has been spilled on pay-for-delay settlements. Seeking to address this anticompetitive behavior, Governor Newsom stated that through AB 824, “‘California will use our market power and our moral power to take on big drug companies and prevent them from keeping affordable generic drugs out of the hands of people who need them….’” California is the first state to pass legislation to address these settlements.
AAM has alleged claims including violations of the dormant Commerce Clause, the Eighth Amendment’s excessive fines clause, and patent preemption. On December 31, 2019 the court denied AAM’s motion for a preliminary injunction, but AAM is appealing. For a quick and informative dive into some of the issues raised in this litigation, readers can turn to Michael Carrier’s amicus in support of California’s opposition to the preliminary injunction.
And with that, 2020 promises to be an interesting year for following drug pricing and access litigation as well as a variety of legislative and executive efforts.
Rebecca E. Wolitz is a Research Fellow with the Program On Regulation, Therapeutics And Law in the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham & Women’s Hospital and Harvard Medical School. She is a PhD Candidate in Philosophy at Yale and a former CLB Fellow.
 Though not discussed in this post, PhRMA recently also initiated litigation in the U.S. District of Oregon over drug transparency laws in that state. Serra J. Schlanger has written about this litigation on the FDA Law Blog.