Pharm. Rsch. and Mfr. of Ameri v. Elizabeth Landsberg

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 25, 2022
• Docket: 21-16312
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 25 2022 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

PHARMACEUTICAL RESEARCH AND No. 21-16312 MANUFACTURERS OF AMERICA, D.C. No. Plaintiff-Appellant, 2:17-cv-02573-MCE-KJN

v. MEMORANDUM* ELIZABETH LANDSBERG, in her official capacity as Director of the California Office of Statewide Health Planning and Development,

Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of California Morrison C. England, Jr., District Judge, Presiding

Argued and Submitted July 5, 2022 Honolulu, Hawaii

Before: WARDLAW, NGUYEN, and OWENS, Circuit Judges.

Pharmaceutical Research & Manufacturers of America (PhRMA) appeals

the district court’s denial of its motion for summary judgment. California Senate

Bill 17 (SB 17), codified at California Health & Safety Code § 127677, requires

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. that pharmaceutical manufacturers provide California purchasers with advance

notice of an increase in a pharmaceutical drug’s wholesale acquisition cost (WAC)

exceeding 16% over two years (the “advance notice” requirement) and a statement

as to whether the increase in WAC is due to a change or improvement in the drug

(the “disclosure” requirement). PhRMA challenges SB 17 as facially violating

both the dormant Commerce Clause and the First Amendment. The district court

certified its order for interlocutory review, specifically referencing its ruling

denying the facial dormant Commerce Clause challenge. We granted PhRMA’s

petition for interlocutory appeal, vesting us with jurisdiction under 28 U.S.C. §

1292(b). We affirm, and do not reach PhRMA’s First Amendment claim.1

The district court did not err in finding that genuine disputes of material fact

exist as to whether SB 17 directly regulates interstate commerce. PhRMA argues

that SB 17’s advance notice requirement amounts to direct regulation of interstate

commerce. See Cal. Health & Safety Code § 127677(b). “A local law directly

regulates interstate commerce when it ‘directly affects transactions that take place

across state lines or entirely outside of the state’s borders.’” Rosenblatt v. City of

1 The district court’s certification order does not mention PhRMA’s First Amendment claim, and PhRMA did not request review of the First Amendment claim either at the district court or in its petition for interlocutory review before this court. While we have the discretion to review the district court’s First Amendment holding as part of the certified order on appeal, see Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 205 (1996), we decline to exercise such discretion.

2 Santa Monica, 940 F.3d 439, 445 (9th Cir. 2019) (quoting Daniels Sharpsmart,

Inc. v. Smith, 889 F.3d 608, 614 (9th Cir. 2018)). “[T]he ‘practical effect’ of a

challenged statute is ‘the critical inquiry’ in determining whether that statute

constitutes direct regulation.” S.D. Myers, Inc. v. City & Cnty. of San Francisco,

253 F.3d 461, 467 (9th Cir. 2001) (quoting Healy v. Beer Inst., 491 U.S. 324, 336

(1989)).

The district court correctly determined that “PhRMA claims SB 17 directly

impacts out-of-state drug prices but what that impact may actually be remains

unclear.” While PhRMA argues that the advance notice provision freezes drug

prices nationwide, WAC is a nationwide list price set by manufacturers for each

drug that does not reflect the final transaction price. In its opposition to summary

judgment, California presented expert testimony that changes in WAC are not

directly tied to changes in a drug’s final transaction price. Additionally, while

PhRMA correctly notes that WAC is sometimes used in negotiations of drug prices

in federal Medicare reimbursement and state Medicaid reimbursement programs,

California’s experts explained that the frequency of WAC’s use in these

reimbursement formulas and WAC’s precise effects in calculating reimbursement

amounts remains unclear. With regard to private contractual negotiations, the

district court correctly found that PhRMA provides no “explanation or examples as

to how these market transactions will be impacted, especially since such contracts

3 involve negotiations on a wide array of factors, including rebates and discounts.”

And PhRMA fails to identify a single party unable to increase the WAC on a

pharmaceutical drug due to SB 17’s advance notice requirement.

In short, we currently lack the evidentiary record needed to determine

whether SB 17 actually regulates interstate commerce in the pharmaceutical drug

market.2 On remand, PhRMA will have the opportunity to present such evidence.

But, on this record, the district court did not err in determining that there are

genuine disputes of material fact as to whether SB 17’s practical effect is to

directly regulate transactions in interstate commerce. See Rosenblatt, 940 F.3d at

445.

AFFIRMED AND REMANDED.

2 The district court bypassed discovery and proceeded directly to summary judgment proceedings at PhRMA’s request.