Three Drug Pricing Litigation Issues to Watch in the Second Half of 2024

It has been a busy year for issues related to drug pricing, and with the election around the corner, litigation issues that have been developing over the last few years are likely to be a key focus for the second half of 2024. The FTC and private litigants are testing the limits of Orange Book listings, and challenges to the IRA's drug-pricing provisions continue to percolate in court. Further, the FTC seeks to lower prescription drug prices by curbing certain PBM practices, while vowing to revive the Robinson-Patman Act to do so. Below we analyze these recent developments and their implications for the industry and beyond.

Allegedly Improper Orange Book Listings

In September 2023, the Federal Trade Commission (FTC) issued a policy statement, warning pharmaceutical companies that they could face legal action if they improperly list patents in the Food and Drug Administration's (FDA) Orange Book, declaring that 'improper Orange Book Listings may disincentivize investments in developing a competing product and increase the risk of delayed generic and follow-on product entry, reducing patient access to more affordable prescription drugs and increasing costs to the healthcare system'.¹ Less than two months after the policy statement was issued, on November 7, 2023, the FTC made headlines when it sent warning letters to 10 pharmaceutical companies requesting that they delist over 100 patents from the Orange Book.² The FTC issued additional warning letters to 10 pharmaceutical companies on April 30, 2024, targeting 300 more patents.³ Following those letters, there have been a number of key developments:

• Some recipients of the first round of warning letters delisted the contested patents, while the recipients of the second round of letters declined to make any changes to the contested patent listings.⁴
• So far, the warning letters have targeted manufacturers of Drug Device Combination (DDC) products such as inhalers and self-injectors, and their "drug product" patents which claim the product's "device" component rather than its active ingredient. However, the FTC has not made any statements narrowing down the types of patents it would challenge, targeting instead any listing it deems "improper."
• The FTC had previously indicated that it would use its "full legal authority" to take action against brand manufacturers with improperly listed Orange Book patents under Section 5 of the FTC Act and scrutinize any 'history of improperly listing patents during merger review.'"⁵
• In July 2024, the FTC sent a civil investigative demand (CID) to one of the recipients of the warning letters after the patent-holder refused to remove the contested patents from the Orange Book.⁶ It remains to be seen whether the FTC will continue to pursue its investigation, negotiate some sort of resolution, or possibly follow through on its threats to pursue litigation.
• Private plaintiffs have also challenged Orange Book patent listings in courts. For example, in June 2024, the U.S. District Court for the District of New Jersey agreed with a generic-manufacturer plaintiff that the alleged improper listing of patents in the Orange Book could violate the antitrust laws by preventing generic alternatives from entering the market and allowed the claims to proceed against the brand manufacturer.⁷
• Lawmakers have chimed in on this issue as well with several members of the Congress issuing public statements that they would scrutinize pharmaceutical companies with improper patent listings.⁸ The Congressional Research Service also published a short report on improper Orange Book listings, suggesting that Congress consider "whether to impose more responsibilities on FDA, FTC, or the courts, or whether to expand current procedures for challenging Orange Book patents before FDA or in court."⁹

There is no sign of the FTC slowing down on its challenges of allegedly "improper" Orange Book listings. Indeed, it is possible that the FTC will continue to expand its efforts into other therapeutic categories or even other categories of patents (e.g., patents claiming packaging or manufacturing processes). Moreover, the FTC's continued efforts in this space may embolden private plaintiffs to pursue additional cases. Brand drug manufacturers should be taking a close look at the patents they have listed in the Orange Book, particularly those that do not cover active ingredients.

Challenges to IRA Drug Pricing Provisions

The Inflation Reduction Act (IRA), enacted in 2022, contains several provisions aimed at lowering drug prices. The IRA empowers the Department of Health and Human Services (HHS) to "negotiate" drug prices for a narrow set of single source small-molecule drugs and biologics under Medicare, impose rebates on certain drugs with price increases greater than the rate of inflation, cap out-of-pocket costs for drugs under Medicare Part D, and limit copays for insulin under Medicare Part D to $35.¹⁰ The direct negotiation provision has garnered the most attention as it continues to be implemented. The negotiation on the first 10 Medicare Part D drugs selected by HHS, through the Centers for Medicare & Medicaid Services (CMS), is scheduled to be completed by August 1, 2024. CMS is then expected to publish the maximum fair prices on September 1, 2024, effective beginning in 2026.¹¹

The IRA's negotiation provision still faces a mountain of legal challenges in federal courts throughout the country. The core of the challengers' arguments is that the excise taxes imposed for non-compliance are so high that they coerce compliance and force manufacturers to agree on prices in violation of the First Amendment, amount to an unlawful taking of property without just compensation under the Fifth Amendment, and are excessive fines in violation of the Eighth Amendment.¹² While the constitutional challenges are at the forefront, Plaintiffs have also brought procedural challenges, alleging the negotiation provision violates the Administrative Procedure Act (APA) because HHS has issued rules to implement the law without notice and comment, and HHS improperly expanded definitions and requirements for inclusion under law through published guidance.¹³

The legal challenges have so far been unsuccessful, with the lower courts ruling in favor of the government and denying motions to pause implementation of the rule.¹⁴ A deciding factor has been the courts' conclusions that drugmakers are not forced into negotiating because they have a way out by opting out of Medicare,¹⁵ and likewise that participation in the Medicare program is "voluntary."¹⁶ Accordingly, the courts have held the negotiation provision cannot amount to an unconstitutional taking under the Fifth Amendment and the challengers cannot rely on involuntariness as the basis for other constitutional challenges.¹⁷ The courts have also rejected the First Amendment challenges by holding the negotiation provision regulates conduct, not speech, and any alleged effect on the plaintiffs' speech is merely incidental.¹⁸ In addition to rejecting the constitutional claims, procedural challenges under the APA have also been denied, concluding that Congress exempted much of the program's regulatory framework from the typical notice-and-comment procedures.¹⁹

The courts' conclusions are being aggressively challenged on appeal, with multiple Circuit Courts of Appeal poised to hear the issues. The Third Circuit will hear three separate appeals together challenging the negotiations, while a notice of appeal to the Second Circuit has been filed.²⁰ The Fifth Circuit recently heard oral arguments on whether to reinstate a Texas-based case brought by pharmaceutical companies.²¹ The Sixth Circuit and D.C. Circuit may also have an opportunity to weigh in, as cases are pending in the district courts within these Circuits.²² The appellate decisions will be crucial to the fate of the law, and the challenges may end up before the U.S. Supreme Court if the Circuit Courts rule in different directions resulting in a Circuit split.

Most of the challenges have focused on the legality of the negotiation under the Constitution, and not procedural challenges under the APA or challenges to agency action to implement the law. This may be due to the provision of the law that expressly limits judicial challenges to key agency actions, such as the selection of drugs for inclusion in the program as "negotiation eligible" or "qualifying single source drugs," and the determination of the "maximum fair price" of the drug by HHS.²³ However, the U.S. Supreme Court's recent decision in Loper Bright that overruled Chevron may provide both motivation and ammunition for additional procedural challenges.²⁴ The success and timing of such challenges remains to be seen.²⁵

The law has faced challenges from lawmakers as well. One criticism of the negotiation provision has been that it will incentivize the development of biologics at the expense of small molecule drugs, as the law currently exempts biologics from negotiation for a longer period than small molecule drugs.²⁶ A bipartisan bill was introduced that aims to equalize the negotiation periods between the two to ensure a continued flow of private investment in both biologics and small molecules.²⁷

The effects of the negotiation provision remain to be seen. Manufacturers and other industry stakeholders have raised concerns that the law may limit investments in research and innovation, curb innovation, affect critical product-development decisions, and alter economic incentives in the pharmaceutical industry.²⁸

A Revival of the Robinson-Patman Act to Challenge PBM Conduct?

A key priority of the Biden Administration has been to lower drug prices. Since 2022, the FTC has been studying PBM practices based on its authority under Section 6(b) of the FTC Act.²⁹ On July 9, 2024, the FTC released an interim staff report based on its Section 6(b) inquiry.³⁰ The report draws attention to increased consolidation of the PBM industry over the past two decades and takes issue with certain PBM business practices.³¹ Among other observations, the report presents three main conclusions from the FTC's perspective:

• PBMs have become highly integrated and concentrated, wielding significant control over Americans' prescription drug access, insurance coverage, and pricing across the value chain.³²
• Increased consolidation has permitted PBMs to implement advantageous contractual terms, such as steering provisions towards specialty drugs and higher reimbursement rates for PBM-affiliated pharmacies, which supposedly harm independent pharmacies and inflate drug costs for consumers.³³
• PBM drug rebates to large drugmakers may "block" entry of less expensive competitors, specifically generics or biosimilars.³⁴

On July 23, 2024, the House Oversight Committee released its own report on PBMs.³⁵ The report, published in advance of a hearing that saw three PBM executives testify, similarly scrutinizes PBM rebate practices and steering provisions, while also proposing legislative reforms to curb these practices.³⁶

Both reports have coincided with efforts by the FTC to revive the use of the Robinson-Patman Act (RPA). Enacted in 1939, amending Section 2 of the Clayton Act, the RPA bars certain types of price discrimination. Although the RPA largely fell out of favor, not least because of its convoluted language, the FTC has signaled an intent to leverage the RPA against large entities across multiple industries. Earlier this year in June, news spread that the FTC is preparing to bring RPA claims against large beverage distributors that serve a major portion of the retail alcohol market.³⁷ News outlets further reported that the FTC plans to sue PBMs over Insulin prices.³⁸ Business practices that promote brand name drugs and incentivize customers to use PBM-affiliated pharmacies are thus more than likely to face heightened FTC scrutiny and potential lawsuits based on antitrust claims, including under the RPA.

Given the FTC's concerted focus on PBMs and their pricing practices, players in the pharmaceutical industry, and especially PBMs, should review their business practices carefully.

White & Case's Global Competition/Antitrust Group and the White & Case Pharmaceuticals & Healthcare Industry Group are tracking these developments in competition and drug policy closely, with a specific focus on potential investigations and litigation.

White & Case Summer Associates Jasmine Chen and Jordan Brown contributed to the development of this publication.

_{1 Press Release, Federal Trade Commission, Statement Concerning Brand Drug Manufacturers’ Improper Listing of Patents in the Orange Book, (Sep. 14, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p239900orangebookpolicystatement092023.pdf.
2 Id.
3 Press Release, Federal Trade Commission, ‘FTC Expands Patent Listing Challenges, Targeting More Than 300 Junk Listings for Diabetes, Weight Loss, Asthma and COPD Drugs’ (Apr. 30, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-expands-patent-listing-challenges-targeting-more-300-junk-listings-diabetes-weight-loss-asthma.
4 US Food and Drug Administration, Patent Listing Disputes (through July 12, 2024), https://www.fda.gov/media/105080/download (last visited Aug. 1, 2024).
5 See Federal Trade Commission, Statement Concerning Brand Drug Manufacturers’ Improper Listing of Patents in the Orange Book, at 4 (14 September 2023), https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-issues-policy-statement-brand-pharmaceutical-manufacturers-improper-listing-patents-food-drug.
6 See Dan Diamond, ‘FTC opens investigation into Teva, escalating patent fight with pharma industry’, Washington Post (July 1, 2024), https://www.washingtonpost.com/health/2024/07/01/teva-patent-pharma-generic-inhaler/.
7 Teva Branded Pharm Prods R&D, Inc v Amneal Pharms of NY, LLC, No. 2:23-cv-20964, at *1 (DNJ 10 June 2024), ECF No. 88; see also Federal Trade Commission’s Brief as Amicus Curiae, Teva Branded Pharm Prods R&D, Inc v Amneal Pharms of NY, LLC, No. 2:23-cv-20964, (DNJ filed 22 March 2024), ECF No. 61-1.
8 See News Release, ‘Senator Amy Klobuchar, Klobuchar Calls on Pharmaceutical Companies To Remove Improperly Listed Patents from FDA Orange Book To Allow for More Competition’ (Jan. 18, 2024), https://www.klobuchar.senate.gov/public/index.cfm/2024/1/klobuchar-calls-on-pharmaceutical-companies-to-remove-improperly-listed-patents-from-fda-orange-book-to-allow-for-more-competition.
9 Kevin J. Hickey, Congressional Research Service, IF12644, Patent Listing in FDA’s Orange Book, at 2 (May 1, 2024), https://crsreports.congress.gov/product/pdf/IF/IF12644.
10 Kevin C. Adam & Eugene Hutchinson, Five Drug Pricing Issues to Watch in 2023, White & Case Insight Alert (Dec. 20, 2022).
11 Drug Price Negotiation Timeline for 2026, Ctr. for Medicare & Medicaid Servs., https://www.cms.gov/files/document/drug-price-negotiation-timeline-2026.pdf (last visited June 20, 2024).
12 See Kevin C. Adam et al., Where Things Stand on Drug Pricing at the Halfway Point of 2023, White & Case Insight Alert (Aug. 23, 2023); Joseph Walker, Merck Challenges U.S. Government's New Powers to Negotiate Drug Prices, The Wall Street J. (June 6, 2023), https://www.wsj.com/health/pharma/merck-challenges-u-s-governments-new-powers-to-negotiate-drug-prices-127d4b0c.
13 See e.g., Compl. ¶¶ 159-79, Boehringer Ingelheim Pharmaceuticals, Inc., No. 3:23-cv-01103 (D. Conn.).
14 See Dayton Area Chamber of Com. v. Becerra, No. 3:23-cv-156 (S.D. Ohio Sep. 29, 2023); AstraZeneca Pharms. LP v. Becerra, No. CV 23-931-CFC, 2024 WL 895036 (D. Del. Mar. 1, 2024); Bristol Myers Squibb Co. v. Becerra, No. CV 23-3335, 2024 WL 1855054 (D.N.J. Apr. 29, 2024); Boehringer Ingelheim Pharmaceuticals, Inc. v. U.S. Dep’t of Health and Human Servs., No. 3:23-cv-01103, 2024 WL 3292657 (D. Conn. Jul. 3, 2024); Novo Nordisk Inc. v. Becerra, No. 23-20814, 2024 WL 3594413 (D.N.J. July 31, 2024).
15 See Joshua Cohen, Legal Challenges To IRA Drug Price Negotiations Face Skeptical Judges, Forbes (Mar. 9, 2024), https://www.forbes.com/sites/joshuacohen/2024/03/09/legal-challenges-to-ira-drug-price-negotiations-face-skeptical-judges/.
16 See e.g., Bristol Meyers Squibb Co., 2024 WL 1855054, at *6-9.
17 Id.
18 Id. at *10-11.
19 See, e.g., Boehringer Ingelheim Pharmaceuticals, Inc., 2024 WL 3292657, at *19-21.
20 See AstraZeneca Pharmaceuticals LP v. U.S. Secretary of Health & Human Servs., No. 24-1819 (3d Cir. June 13, 2024), ECF No. 17; Notice of Appeal, Boehringer Ingelheim Pharmaceuticals, Inc. v. U.S. Dep’t of Health and Human Servs., No. 23-CV-01103 (D. Conn. July 26, 2024).
21 Avalon Zoppo, Judges Hear 1st Challenge to Medicare Drug Price Program to Hit Federal Appeals Court, Law.com (May 1, 2024), https://www.law.com/nationallawjournal/2024/05/01/judges-hear-1st-challenge-to-medicare-drug-price-program-to-hit-federal-appeals-court/.
22 See Dayton Area Chamber of Com. v. Becerra, No: 3:23-cv-156 (S.D. Ohio); Merck v. Becerra, No. 1:23-cv-01615 (D.D.C.).
23 42 U.S.C. § 1320f-7.
24 Loper Bright Enterprise v. Raimondo, 603 U.S.__(2024), https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf.
25 See Medicare Rx Negotiation More Insulated from SCOTUS Fallout, But Some Key CMS Decisions Could be Vulnerable, Pink Sheet (July 11, 2024), https://pink.citeline.com/PS154939/Medicare-Rx-Negotiation-More-Insulated-From-SCOTUS-Fallout-But-Some-Key-CMS-Decisions-Could-Be-Vulnerable.
26 Greg Slabodkin, Stakeholders Hope Bill Will Create IRA Drug Negotiation Parity Between Biologics and Small Molecules, BioSpace (Feb. 29, 2024), https://www.biospace.com/article/stakeholders-hope-bill-will-create-ira-drug-negotiation-parity-between-biologics-and-small-molecules-/.
27 To Amend Title XI of the Social Security Act to Equalize the Negotiation Period Between Small-Molecule and Biologic Candidates under the Drug Price Negotiation Program, H.R.7174, 118th Cong. (2023-2024).
28 See, e.g., Kevin J. Hickey, et al. Medicare Drug Price Negotiation Under the Inflation Reduction Act: Industry Responses and Potential Effects, Cong. Rsch Serv. (Dec. 8, 2023); Cathy Kelly, IRA Effect: Alnylam Acting 'Rationally' In Halting Second Orphan Indication for Amvuttra – Analysts, Pink Sheet (Nov. 7, 2022), https://pink.citeline.com/PS147255/IRA-Effect-Alnylam-Acting-Rationally-In-Halting-Second-Orphan-Indication-For-Amvuttra--Analysts; Joe Grogan, The Inflation Reduction Act Is Already Killing Potential Cures, Wall Street J. (Nov. 3, 2022), https://www.wsj.com/articles/the-inflation-reduction-act-killing-potential-cures-pharmaceutical-companies-treatment-patients-drugs-prescriptions-ira-manufacturers-11667508291; John Stanford, Congress Must Fix the IRA's Small Molecule Penalty, STAT News (Mar. 6, 2023), https://www.statnews.com/2023/03/06/congress-must-fix-ira-small-molecule-penalty/; Arti K Rai et al, Cryptic Patent Reform Through the Inflation Reduction Act, Harvard J. L. & Tech, Forthcoming (Mar. 27, 2023); Cathy Kelly, Game On: Medicare Will Parry Manufacturer Efforts to Sidestep Price Negotiation, Guidance Says, Pink Sheet (28 March 2023), https://pink.citeline.com/PS147960/Game-On-Medicare-Will-Parry-Manufacturer-Efforts-To-Sidestep-Price-Negotiation-Guidance-Says; Cathy Kelly, Medicare Negotiation Workarounds: Lilly's Ricks on Big Pharma Pricing Strategies for Small Molecule Drugs, Pink Sheet (June 15, 2023), https://pink.citeline.com/PS148389/Medicare-Negotiation-Workarounds-Lillys-Ricks-On-Big-Pharma-Strategies-For-Small-Molecule-Drugs. 
29 Lina M. Khan, Fed. Trade Comm’n Remarks of Chair Khan Regarding the FTC Rebate Policy Statement (June 16, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Remarks-Chair-Lina-Khan-Regarding-Policy-Statement-Rebates-Fees.pdf.
30 Fed. Trade Comm’n, The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies (2024), https://www.ftc.gov/reports/pharmacy-benefit-managers-report.
31 Id.
32 Id.
33 Id.
34 Id.
35 H.R. Comm. on Oversight and Accountability, Report on Pharmacy Benefit Managers, (2024), https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf.
36 Id.
37 Josh Sisco, FTC Preparing Lawsuit Over Alcohol Pricing, Politico (June 3, 2024), https://www.politico.com/news/2024/06/03/ftc-lawsuit-southern-glazer-wine-spirits-00161323.
38 Liz Essley Whyte and Anna Wilde Mathews, FTC to Sue Drug Managers Over Insulin Prices, Wall Street Journal (July 10, 2024), https://www.wsj.com/health/pharma/ftc-to-sue-drug-managers-over-insulin-prices-b46af71f.}

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