United States: AstraZeneca's Challenge To Price Negotiation Fails In Federal District Court

Last Friday, the Delaware District Court rejected AstraZeneca's lawsuit against the Medicare Drug Price Negotiation Program enacted under the Inflation Reduction Act (IRA) and CMS's guidance implementing it. AstraZeneca, whose drug Farxiga was selected last September for negotiations for price applicability year 2026, claimed that the IRA violated AstraZeneca's Fifth Amendment right to due process because it deprived the company of its investment-backed patent rights and common-law right to sell its products at market prices free from governmental constraints. AstraZeneca also claimed that CMS's revised guidance on the Negotiation Program for Price Applicability Year 2026 ("Guidance") interpreted the IRA in two very faulty ways, which violated the Administrative Procedure Act (APA) and harmed and will continue to harm the company.

In granting the Government's summary judgment motion, the court held that AstraZeneca did not have the requisite standing for the APA arguments because it failed to identify a cognizable injury-in-fact that could be redressed by vacatur of the Guidance. The court also found that the company could not win on its Fifth Amendment argument because it did not have a protected property interest.

AstraZeneca's APA Arguments on CMS's Guidance

The majority of the court's analysis revolved around AstraZeneca's two APA claims. First, AstraZeneca alleged that CMS improperly defined a "qualifying single source drug" to include all dosage forms and strengths of the drug marketed by the manufacturer with the same active moiety or ingredient—even if those different forms and strengths were approved under different NDAs. Opinion at 17. According to AstraZeneca, the statute defines a qualifying single source drug by reference to its individual "approval," and "any other reading . . . contradicts the plain text of the statute and therefore must be set aside." Id.; see also 42 U.S.C. § 1320f-1(e)(1)(A). Second, AstraZeneca alleged that CMS's requirement that a generic drug must be marketed in a bona fide way to be "marketed" under § 1320f-1(e)(1)(A)(iii) "impermissibly expanded the requirements" for a drug to be deemed to have generic competition in order to avoid selection and negotiation. Id. at 17-18. According to AstraZeneca, "the ordinary and accepted meaning of 'marketing' is 'exposure for sale in a market,' and if a generic drug is exposed for sale in any way or quantity, the reference brand drug cannot be a selected drug for negotiation under the Program." Id. at 18.

But AstraZeneca did not, and could not, allege harm due to CMS's selection of Farxiga: indeed, neither argument related to Farxiga, which is approved only under one NDA and has no generic versions marketed in any manner or quantity. Id. at 19-20. Instead, AstraZeneca alleged harm in four other ways. The court reviewed each argument in turn and in each case, found AstraZeneca unable to allege cognizable injury that could be redressed by vacatur of the Guidance. As a result, the court found that AstraZeneca did not have standing to assert its APA claims.

First, AstraZeneca claimed that CMS's interpretation of a qualifying single source drug will decrease the company's incentives to investigate additional uses of Farxiga's single-ingredient active moiety. The court dismissed this argument holding that a loss or diminishment of an incentive to do something is not a concrete injury, and even if it was a sufficiently concrete injury, it was not "actual or imminent," but only an allegation of possible future injury. Id. at 21-23. Moreover, the court found that the record showed a very low likelihood that AstraZeneca could get approval for a new indication with the same active moiety or ingredient and that it was not actively investigating drugs with only that active moiety. Even if the company did obtain approval, such approval would likely be after generic competition for Farxiga enters the market, in which case the definition of a qualifying single source drug would no longer apply to Farxiga.

Second, AstraZeneca claimed that the Guidance's bona fide marketing test will cause it imminent injury in the form of simultaneous generic competition and mandatory pricing "for months" after generic versions of Farxiga enter the market. AstraZeneca argued that CMS's bona fide marketing test, which is based on claims data, moves "at glacial pace" and can be delayed by numerous months. The court found numerous flaws with this argument. First, the Act has no requirement for CMS to "release" a selected drug from negotiations from the 2026 price simply because a generic is approved and marketed before or during 2026, so CMS's bona fide marketing requirement could not have created an injury. Rather, the IRA requires a selected drug to remain selected for "each subsequent year beginning before the first year that begins at least 9 months after the date on which . . . at least one drug" has been approved and marketed. See id. at 28. Also, the IRA would subject Farxiga to the negotiated maximum fair price for the entirety of 2026 if no generic version entered the market before August 1, 2024, even if a generic drug later enters the market before or during 2026. Id. at 28-29. Because the alleged harm arises from the Act, not from the Guidance, the court found that AstraZeneca did not meet the causation or redressability elements of standing under this argument. To the extent that AstraZeneca alleged that CMS would cause it this type of harm in 2027, the court found that allegation to be too speculative. In any case, AstraZeneca did not address whether CMS's "totality-of-the-circumstances" test (which involves more than just the claims data) would suffer from the same delays, and whether those delays will be greater than those under AstraZeneca's proposed definition of "marketed."

Third, AstraZeneca argued that its current decision-making about other drugs has been and will continue to be negatively affected by CMS's Guidance. AstraZeneca argued it would very likely have products in future lists of drugs selected for negotiations. The court dismissed this alleged harm as too vague to establish a cognizable injury, and the argument as irrelevant given the fact that the allegedly violative Guidance only applies to the 2026 price applicability year.

Fourth, AstraZeneca argued that CMS's erroneous interpretation of the statute has made it very difficult for the company to understand the real value of their product under CMS's guidance and impaired its ability to make a counteroffer to the Government's price offer. The court disagreed: AstraZeneca clearly understood how CMS's guidance impacted the value of its product because it based its entire complaint on that impact. The court agreed that AstraZeneca faced uncertainty due to the instant lawsuit, but explained that the lawsuit cannot, by itself, be used to create standing.

Constitutional Challenge

AstraZeneca also alleged that the Negotiation Program violated the Constitution's Fifth Amendment prohibition against depriving a person of property without due process of law. AstraZeneca claimed that the IRA deprived it of its "common law right to sell its products at market prices free from arbitrary and inadequately disclosed governmental constraints" by "directing [CMS] to fix prices at the 'lowest' level, without affording adequate procedural safeguards." Id. at 42. AstraZeneca also alleged that the Program deprived the company of its property interest in "undefined 'patent rights' . . . and the revenue it derives therefrom . . . by compelling sales of its products at well-below market prices." Id. at 42-43.

The court found that AstraZeneca did not have any protected property interest of which the IRA allegedly deprived it. According to the court, AstraZeneca's "desire" or even "expectation" to sell its drugs to the Government at the higher prices it once enjoyed does not create a protected property interest." Id. at 45. The court reasoned that no one is entitled to sell to the Government at prices the Government will not agree to pay. According to the court, because AstraZeneca has no legitimate claim of entitlement to sell its drugs to the Government at any price other than what the Government is willing to pay, the due process claim must fail as a matter of law. Id. The court also reiterated that neither the IRA nor any federal law requires AstraZeneca to sell its drugs to Medicare beneficiaries. "On the contrary, participation in the Medicare program is a voluntary undertaking." Id. at 44.

The Road Ahead for the Negotiation

AstraZeneca is the first case to be decided among at least nine federal lawsuits brought by the pharmaceutical industry against the Negotiation Program (a tenth lawsuit brought by Astellas was withdrawn last fall; see list of cases in the chart below). In another case, the Southern District Court of Ohio denied a motion for preliminary injunction, but a decision on the merits is still pending. We expect decisions in the remaining cases in the upcoming weeks, and certainly before the maximum fair prices are published in September 2024.

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