PhRMA Revives its Lawsuit against Enforcement of California Drug Pricing Transparency Bill SB 17

October 4, 2018By David C. Gibbons & McKenzie E. Cato & Alan M. Kirschenbaum

On September 28, 2018, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed an Amended Complaint seeking declaratory and injunctive relief against implementation and enforcement of California Senate Bill 17 (SB 17). On August 30, 2018, the United States District Court for the Eastern District of California granted the State of California’s Motion to Dismiss PhRMA’s original Complaint filed on December 8, 2017. We previously blogged on SB 17 here and PhRMA’s lawsuit here and here. PhRMA’s Amended Complaint can be accessed here.  SB 17, which went into effect on January 1, 2018, imposes notification and reporting requirements on pharmaceutical manufacturers for certain price increases on their products sold to state purchasers, insurers, and pharmacy benefit managers in California.

In summary, the district court dismissed PhRMA’s original Complaint on procedural grounds, without prejudice, granting PhRMA leave to amend its Complaint within 30 days. Granting, in part, California’s Motion to Dismiss, the district court held that Governor Brown, who was sued in his official capacity as a state official, did not have a direct connection with the enforcement of SB 17, but rather only had “general oversight” over the state’s executive branch and, therefore, was immune from PhRMA’s lawsuit. Memorandum and Order at 7, PhRMA v. Brown, No. 2:17-cv-02573 (E.D. Cal. Aug. 30, 2018) [hereinafter Order].

The district court also dismissed PhRMA’s lawsuit for lack of standing. Id. at 10. An association, like PhRMA, has standing to bring a lawsuit on behalf of its members “when its members would otherwise have standing to sue in their own right, the interests at stake are germane to the association’s purpose, and neither the claim asserted nor the relief requested requires the participation of individual members [in the lawsuit].” Defs.’ Memorandum of Points and Authorities in Support of Motion to Dismiss at 10, PhRMA v. Brown, No. 2:17-cv-02573 (E.D. Cal. Jan. 26, 2018) (quoting Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 181 (2000)). The court held that PhRMA’s assertions regarding the potential harm that may be incurred by its members were speculative, citing “a long-settled principle that standing cannot be inferred argumentatively from averments in the pleadings,” and must be based on allegations of facts essential to demonstrate jurisdiction. Order at 10.

In its Amended Complaint, PhRMA addressed the defect with respect to standing, but dropped Gov. Brown as a Defendant. The Amended Complaint includes new information describing how the alleged constitutional flaws of SB 17 directly harm individual PhRMA member companies. Since the notice requirement became effective, PhRMA states, several of PhRMA’s member companies have filed advance notices of price increases “in violation of their constitutional rights.” Amended Complaint at 33, PhRMA v. Brown, No. 2:17-cv-02573 (E.D. Cal. Sept. 28, 2018). To illustrate its assertion, PhRMA attached to the Amended Complaint an anonymized example of one such notification made by a member company. In addition, the Amended Complaint notes that some PhRMA member companies have taken price increases on particular drugs during the statutory 2-year look-back period that have exceeded the 16 percent reporting threshold. If SB 17 is retroactive, which the California Office of Statewide Health Planning and Development (OSHPD) has not clarified to date, companies could not institute any price increase on their products without triggering the requirement to disclose information and make public statements to which they object. Id. The Amended Complaint states that PhRMA members are “faced with a Hobson’s choice: they can either act as though the law is retroactive, ensuring they are in compliance with a harmful and unconstitutional law; or they can refuse to make retroactive calculations and face a risk of enforcement action.” Id. at 35. Due to the ambiguity of the statute, PhRMA explains, the member companies cannot make the price increases now because of the risk that OSHPD will later charge them with a violation under the statute.

We will continue to track developments in this litigation, including whether PhRMA has pleaded sufficient additional facts to establish its standing as a Plaintiff in this matter.