Following Regulation, PhRMA and BIO Drop Challenge to State Drug Pricing Law

By Alan M. Kirschenbaum & Eliot Markman* –

On Thursday, June 28, 2018, two industry trade associations, Pharmaceutical Research and Manufacturers of America (“PhRMA”) and Biotechnology Innovation Organization (“BIO”), agreed to drop a lawsuit against Nevada related to S.B. 539, a 2017 diabetes drug price increase transparency bill. (See our previous blog post about this lawsuit here and the initial complaint here). A joint status report—also filed on June 28, 2018—describes three reasons why PhRMA and BIO agreed to release their claims: (1) Nevada issued an emergency regulation narrowing the statute, (2) the state agreed to delay enforcement of certain reporting requirements, and (3) the parties agreed to reserve their rights to resume litigation. Joint Status Report at 2-4, PhRMA v. Sandoval, No. 2:17-cv-02315 (D. Nev. Jun. 28, 2018).

First, the Emergency Regulation, LCB File No. R042-18 (effective May 31, 2018), amends Chapter 439 of the Nevada Administrative Code to allow companies to petition the Nevada Department Health and Human Services (the “Department”) to keep a manufacturer’s pricing information confidential. The parties explain what information a manufacturer must submit in a request to the Department to keep their drug pricing information confidential: “(1) ‘ . . .  the information sought to be protected from public disclosure,’ [Emergency Regulation] § 3(2)(a); and (2) ‘ . . . an explanation of the reasons why public disclosure of the information would constitute misappropriation of a trade secret [under] the federal [Defend Trade Secrets Act] . . . ,’ id. § 3(2)(b).” Joint Status Report at 3.  The parties acknowledge that Nevada believes that this regulation, on its own, cures any constitutional defect in the statute.  (PhRMA and BIO offer no opinion as to whether the regulation cures any constitutional defect in the statute.)

Second, PhRMA and BIO agreed to drop their lawsuit because Nevada delayed the enforcement of certain reporting requirements in the statute. On June 7, 2018, the Department stated on its website that it would not proceed with enforcement actions related to manufacturers’ reports submitted on or before January 15, 2019. The Department further assured the plaintiffs in emails sent on June 8 that they would not bring any enforcement action against any manufacturer based on the submission of an incomplete report, or even no report, as long as the manufacturer submits a compliant report on or before January 15, 2019.

Third, the parties represented that they were not waiving their rights to future litigation even though they were agreeing to voluntary dismissal without prejudice. Specifically, the parties agreed not to waive the constitutional arguments related to S.B. 539 (summarized in our previous blog post here).

We will continue to monitor this and similar lawsuits against states that have enacted drug pricing laws aimed at curbing drug price increases.

* Summer Associate