Colorado price-setting board conflicts with federal law, BIO tells court

Colorado’s efforts to impose price controls on prescription drugs are preempted by federal law, according to a legal brief by the Biotechnology Innovation Organization (BIO). Colorado’s approach presents a threat to both innovation and patient access, particularly for rare disease patients, the brief, filed Sept. 13, explains.

BIO’s amicus brief, in support of drug-maker Amgen, questions the legal basis for Colorado’s Prescription Drug Affordability Board (PDAB), a new body created to set the price of prescription drugs in the state.

“Colorado’s approach disregards the careful balance between innovation and access struck by Congress in the Orphan Drug Act, the Hatch-Waxman Act, and a multitude of other federal health laws,” says John Delacourt, Deputy General Counsel at BIO.

Though the current case focuses on a single drug, Amgen’s Enbrel, the scope of the problem is potentially much bigger. Colorado’s PDAB has selected multiple medicines for price setting via their “affordability review” process in 2024 and plans to select more in future years.

Meanwhile, a number of states have established, or are considering establishing, their own PDABs and some are preparing to start setting prices. This case will show that a patchwork of state PDAB laws would inevitably lead to conflicts and is simply unworkable, argues BIO’s brief.

By trying to set a price below the national list price, PDABs can reduce patient access to drugs in their state, as Bio.News has reported. The risk that patients will not be able to obtain the drugs they need has caused concern among patient groups. Advocates also say that the savings from PDABs may go to pharmacy benefit managers without translating into cost savings for patients.

Patent and health law conflicts

On March 22, Amgen filed suit in Federal District Court in Colorado, raising a number of objections to Colorado’s price-setting activity. The main objection is that Colorado’s PDAB law, which authorizes a state entity to set the price of patented pharmaceuticals by fiat, conflicts with federal patent law.

Under the Patent Act, the inventor of a new drug is awarded a period of exclusivity during which no one else can make or sell that product. This patent-driven system of incentives has spurred tremendous advances in fields ranging from aerospace to computer technology.  It has also spurred advances in prescription drugs, with major benefits for patients..

As Amgen’s lawsuit points out, by imposing price caps on drug products that are still within the patent term, Colorado’s PDAB law robs those patents of much of their value. It also supplants the considered judgment of the U.S. Congress, embodied in the Patent Act, with that of the Colorado legislature.

BIO agrees with Amgen’s contentions and urges the Court to consider broader conflicts with federal law. As BIO explains in its amicus brief, in addition to the conflict with federal patent law, the Colorado PDAB law:

• conflicts with federal health laws encouraging innovation in new drugs through exclusivity rights; and
• interferes with drug prices outside of Colorado, including with federal program pricing mechanisms that affirmatively rely on market forces.

As a result of these flaws, the Colorado law is not only preempted by a host of conflicting federal laws and rules but is, practically speaking, unworkable.

Threat to innovation

As BIO’s brief notes, Congress has created a number of regulatory exclusivities with health-specific goals. They are intended to serve as real, actionable incentives for biotech innovation, not “ephemeral rights that states could easily circumvent through clever draftsmanship.”

These exclusivity periods are carefully targeted to help biopharma innovators attract investment and recover their substantial R&D costs, the brief explains.

While listing several health-related exclusivity periods, BIO’s brief focuses primarily on those created by the Generating Antibiotic Incentives Now (GAIN) Act and the Orphan Drug Act (ODA), which encourages new drugs for patients with rare diseases.

“Even though orphan drugs can dramatically improve patient welfare and save lives, their demand is small compared to their extremely high research and development costs,” the brief explains. The ODA addresses this challenge.

More than 25 million Americans have some kind of rare disease, defined as a condition that is shared by fewer than 200,000 other patients in the U.S., according to the National Organization for Rare Disorders. In 1983, before the ODA incentivized development, there were 38 drugs approved against rare diseases in the U.S. Now, there are more than 600 orphan drugs targeting more than 1,000 rare diseases.

The exclusivity period created by the GAIN Act has a similar purpose. Antimicrobial resistance (AMR) causes nearly 5 million deaths annually, claiming more lives than HIV. Without AMR drugs, patients face greater risks from deadly conditions like sepsis, and even a simple cut could someday become deadly. The GAIN Act seeks to help.

The market for some antibiotics, particularly for certain highly resistant strains of bacteria, can be small, and antibiotics are only used for a short period. By incentivizing drug-makers with the GAIN Act’s exclusivity period, Congress not only confronted this disconnect but took an important step toward addressing the growing public health concern of AMR “super bugs.”

Unfortunately, Colorado’s PDAB law ignores this complicated web of pre-existing legislation, BIO’s brief asserts. Just as the PDAB’s unilateral price-setting would deprive the manufacturer of a patented drug of much of the patent’s value, it would erode the value of hard-won ODA and GAIN Act exclusivity periods.

Impact beyond Colorado

BIO’s brief further argues that Colorado’s PDAB law exceeds the state’s authority by virtue of its impact on the citizens of other states. Due to the complicated nature of the pharmaceutical supply chain, any price set by Colorado’s PDAB would likely impact wholly out-of-state transactions between manufacturers, wholesalers, and other supply chain intermediaries. The PDAB price could also potentially impact the price calculations central to federal programs with nationwide reach.

Many other U.S. states that are implementing or considering PDABs, will be watching what happens with the case in Colorado.

Colorado’s PDAB, is the first in the country to move forward with attempting to establish a maximum price for a drug by setting an upper payment limit. This will make it harder for patients to access drugs and negatively impact decisions about drug development, as BIO & Colorado BioScience Association have explained in written comments to Colorado’s PDAB.

The case in Colorado hopefully will expose why PDABs are unworkable. It will also ensure that the price of drugs will be set by the market and not impacted by varying prices in varying states.

“Colorado is essentially saying let’s bypass the market and just fix the price unilaterally,” Delacourt says. “What happens in Colorado is going to have an effect on what others will pay. It’s not only going to have an impact in Colorado, but in Montana and California and New York – all around the country.”