The Supremes Shape Pharma

It was a boom year for pharma at the Supreme Court of the United States. Right up to the end of June, the Justices addressed key issues involving free speech, federal preemption, and patents—many, but not all, in favor of manufacturers. Rulings involving other parties also promise to affect how drugmakers do business, as do Court decisions to reject certain cases (see sidebar).

Jill Wechsler

Next year may be even more momentous if the High Court decides to take on the constitutionality of Obama Administration health reform policy. In June, the federal appeals court for the 6th circuit surprised the experts by supporting the individual coverage mandate. The judges declared the policy a legal regulation of interstate commerce, and that allowing people to go uninsured would permit "free riders" to take advantage of other taxpayers.

The Supremes also will hear a complex case on generic drug competition (Caraco Labs v. Novo Nordisk). The dispute centers on whether Caraco can market its generic version of diabetes drug Prandin for additional uses under a "carve-out label," or whether Novo Nordisk can block such action, as a federal circuit court ruled two years ago. It's a fairly narrow and technical issue for the Supremes, but will be closely watched.

The Importance of Rejects

Pro Preemption

Of particular importance to government-regulated pharma companies are several key decisions this past term supporting federal preemption of state laws. Vaccine makers and patients won an important victory when the High Court ruled against damage suits charging manufacturer malfeasance. The justices affirmed that the National Childhood Vaccine Injury Act of 1986 protects vaccine makers from injury suits, agreeing with Pfizer that siding with the plaintiffs in a 1992 DPT vaccine case (Bruesewitz v. Wyeth) would expose manufacturers to countless design defect charges and undermine the no-fault vaccine compensation policy. The American Academy of Pediatrics praised the High Court's ruling, while Justice Sonia Sotomayor dissented, arguing that more should be done to assure that vaccine manufacturers properly design and distribute their products.

Another preemption case involving generic drug labeling was more contentious, but also supported federal food and drug law over state policy. In a close 5-4 decision, the court ruled that generic drug companies Actavis and Pliva cannot be sued under state law for failing to warn patients of new safety problems if the information is not on innovator labels—and FDA requires generics labels to be exactly the same as the brand. In an opinion written by Justice Clarence Thomas, the majority advised that state laws must give way to federal policy when the two directly conflict, as is the case when following the state law would place generics firms in an impossible bind by forcing them to violate FDA policy.

Two years ago, in the Wyeth v. Levine case, the Supremes came to the opposite conclusion for a brand-name firm, ruling that the company failed to provide sufficient warnings on its label, even though it complied with FDA requirements. In this year's case, the minority argued that federal law should not immunize generics manufacturers from all state failure-to-warn claims, and that companies should propose changes to FDA if existing labels are inadequate. Thomas agreed that brand firms can be liable for inadequate safety warnings, and that the court should not rule differently for generics, but ended up acknowledging that the High Court has to adhere to the law.

In another case involving federal and state authority (Astra USA v. Santa Clara County), the Supremes ruled that California health facilities cannot sue drugmakers for withholding discounts authorized by Medicaid and the 340B discount program. A unanimous decision written by Justice Ruth Bader Ginsburg explains that only the federal government can bring suit for violations of federal contracts involving these and other health programs. The Obama Administration backed the drug companies, while hospitals and providers claimed that they need stronger recourse to obtain low-cost medicines.

Supporting Litigation

Other rulings, though, open drugmakers to lawsuits from shareholders and consumers for withholding safety information. The Court decided that Matrixx Initiatives erred in failing to inform investors that its Zicam over-the-counter cold remedy caused people to lose their sense of smell. Matrixx claimed that only a few, insignificant adverse reports were involved, but the justices determined that the problems were important and should have been disclosed. The decision permits a stockholder suit against Matrixx to proceed; it also may prompt pharma companies to exhaustively disclose adverse events reports in future Securities and Exchange Commission filings.

Similarly, the High Court decided to permit West Virginia plaintiffs to proceed with a class-action lawsuit against Bayer AG involving Baycol, a cholesterol-lowering drug that was linked to serious adverse events and as such withdrawn from the market 10 years ago. The Supreme Court overturned a lower court's decision tossing out class-action certification. Bayer has already paid out more than $1 billion to settle thousands of claims, and may face more.

The Baycol case will have little impact on class-action litigation overall in light of the High Court's subsequent decision on the high-profile Dukes v. Wal-Mart case. In a 5-4 opinion cheered by the business community, the Justices blocked a mega class-action case against Wal-Mart, arguing that the potentially huge number of disgruntled women employees did not fit the criteria for a legal "class."

Free Speech Champion

Probably the most important pharma case struck down a 2007 Vermont law prohibiting the collection and sale of physician prescribing data. In his opinion for the majority in this 6-3 decision, Justice Anthony Kennedy said that the Vermont law violates the right to free speech of the data mining and drug companies, while the dissenters argued that the state policy was a constitutional regulation of commercial business. Sorrell v. IMS Health centered on whether data miners could gather information from pharmacies about physician prescribing and sell that data to drug companies for marketing and other uses. Vermont lawmakers claimed their law protected physician privacy, but acknowledged that it also aimed to counter brand marketing and encourage generic prescribing.

The ruling dismayed Vermont physicians, and the American Medical Association complained that every doctor has "the unequivocal right to decide whether his or her individual prescribing data is shielded from pharmaceutical detailers." The majority wrote that the free flow of information has "great relevance in the fields of medicine and public health," and IMS officials crowed that transparency and access to information is "essential to improve patient care and safety." The Vermont law is a "transparent attempt to censor industry speakers," said Coalition for Healthcare Communication executive director John Kamp, noting that good data is key to making informed healthcare decisions. The Justices also sent a similar Maine law back to a lower court for review, and a New Hampshire policy may fall by the wayside.

Patents and Innovation

The current Supreme Court also seems interested in clarifying patent and intellectual property issues, as seen in three patent cases decided this past term. Most prominent was the Microsoft v. i4i case, which addressed the standard of proof for challenging patents. The narrower Stanford v. Roche case pitted the drug company and an individual inventor against Stanford University over assignment of patent rights under the Bayh-Dole Act. The Supremes agreed that a Stanford researcher, who also worked for a biotech company later purchased by Roche, had authority to assign his patent rights to the company even though his work was supported by federal funds. The decision clarified that the university has limited power to control rights to faculty discoveries and collaboration of researchers with private firms.

Jill Wechsler is Pharmaceutical Executive's Washington correspondent. She can be reached at jwechsler@advanstar.com