interior of U.S. Third Circuit Court of Appeals courtroom
Novo Nordisk and Sanofi this week filed briefs with the federal circuit court based in Philadelphia in their appeals of a lower court's rulings in their 340B contract pharmacy lawsuits.

Novo Nordisk and Sanofi Make Their Cases to Federal Appeals Court in 340B Contract Pharmacy Lawsuit

Pharmaceutical manufacturers Novo Nordisk and Sanofi on Tuesday laid out their cases for the next phase of the legal battle over their conditions on 340B pricing when covered entities use contract pharmacies. The cases are before the U.S. Court of Appeals for the Third Circuit in Philadelphia, Pa.

The two companies are appealing a federal district judge’s Nov. 5 ruling that

  • the 340B statute permits contract pharmacy arrangements
  • the companies may not attach strings to offers of 340B pricing
  • the companies’ conditions on 340B pricing constitute overcharging in violation of the 340B statute
  • the federal government’s May 2021 letters telling the companies that their policies are illegal and must stop are not an unconstitutional taking of the companies’ property.

Sanofi also is appealing the judge’s denial of its motion to declare the 340B administrative dispute resolution (ADR) process illegal.

Despite those rulings, the judge struck down and vacated the government’s violation letters “to the extent that such determinations may depend on the number of permissible contract pharmacy arrangements under the 340B statute.”

Novo Nordisk and Sanofi each are challenging the parts of the ruling that went against them. On March 8 they submitted separate briefs to the Third Circuit explaining their arguments in detail.

The federal government has appealed the district court’s decision to strike down the violation letters. The appeals court has not yet announced a deadline for it to file its brief.

Last month a different federal district judge struck down and vacated the federal government’s finding that drug maker AstraZeneca’s conditions on 340B pricing when covered entities use contract pharmacies violates the 340B statute. The government is expected to appeal after the judge hands down final orders in the case. The Third Circuit would hear the appeal.

Novo Nordisk’s Arguments

“This case is about the government’s attempt to rewrite a federal health care statute to impose onerous obligations on pharmaceutical manufacturers,” Novo Nordisk said in its brief’s opening sentence.

“The government seeks to require manufacturers to transfer their drugs at deeply discounted prices to for-profit commercial pharmacies for their own private benefit, a requirement never articulated by Congress or promulgated in any substantive rule or regulation,” Novo Nordisk said. It said the lower court correctly recognized that the 340B statute is silent on the issue of contract pharmacies, as have two other lower courts. “It is also consistent with how the statute operated for more than 14 years,” the company said. “That should have been the end of this case.”

Drug companies’ obligation under the 340B statute “to sell products at a specified price to a specified purchaser does not include an unwritten obligation to deliver the products to third parties at whatever locations the purchaser may desire,” Novo Nordisk said. “Congress has not granted the government general rulemaking authority to administer the 340B statute and, in any event, the government has not even attempted to follow necessary procedures to impose new substantive obligations on manufacturers. As a result, except as otherwise expressly mandated by the statute, manufacturers retain their common law rights, including the right to choose not to transfer their drugs at discounted prices to for-profit commercial pharmacies.”

“Instead of reaching that straightforward conclusion, the district court committed serious errors,” Novo Nordisk said. They include:

  • concluding “that the statute’s silence means that manufacturers have no right to restrict the delivery of their own drugs to third parties, never mind manufacturers’ common law property rights”
  • “equat[ing] the 340B statute’s silence with ambiguity—and then [rewriting] the statute to suit its own policy preferences—even though the court did not identify any relevant statutory terms susceptible to more than one interpretation”
  • “reach[ing] beyond the government’s articulated basis for its interpretation to make its own (uninformed) findings about the 340B program and the effect of manufacturers’ policies on patients.”

“None of these errors should be left uncorrected,” Novo Nordisk said.

Sanofi’s Arguments

Sanofi told the court in its brief that it imposed conditions on the 340B contract pharmacy program to address “skyrocketing rates of waste and abuse.” The conditions include “provid[ing] 340B-priced drugs to an unlimited number of contract pharmacies, if the covered entity submits minimal claims data.”

“To date, hundreds of covered entities have participated in Sanofi’s integrity initiative,” the company said.

“But in 2021, HHS declared Sanofi’s integrity initiative unlawful and threatened Sanofi with massive financial penalties,” Sanofi continued. “Abandoning its longstanding recognition of not only the statute’s silence on contract pharmacies but also the agency’s lack of authority to enforce any such rule, HHS claimed that Section 340B unambiguously requires Sanofi to provide 340B-priced drugs to an unlimited number of contract pharmacies without imposing any conditions.”

The district court acknowledged, as HHS had previously, that the 340B statute is silent on contract pharmacy, the company said. But the court nonetheless largely upheld HHS’s violation letter by relying on the statute’s legislative history, purpose, and post-enactment history, Sanofi said.

“This court should reverse the district court because HHS exceeded its statutory authority—and acted arbitrarily and capriciously—by penalizing Sanofi for violating a statutory requirement that does not exist,” Sanofi said. “Court after court—including the district court—has recognized that the statute says nothing about whether manufacturers must provide 340B-priced drugs to contract pharmacies. That means Congress did not require Sanofi to provide discounted drugs to contract pharmacies, much less require that Sanofi do so unconditionally.”

Sanofi said the 340B statute “simply requires” it to offer 340B-priced drugs to covered entities, which it says it does “with minimal conditions.”

“Accordingly, this court should vacate HHS’s violation letter to Sanofi and, also, the agency’s similar, now-withdrawn advisory opinion regarding contract pharmacies,” it said.

Sanofi added that the court should vacate the 340B ADR final rule issued in December 2020. “When HHS finally rushed out a decade-late ADR rule in December 2020, it did so on the basis of a notice of proposed rulemaking that the agency had withdrawn years earlier—and despite having just announced that it had no plans to issue a rule. This violated the Administrative Procedure Act,” Sanofi said.

340B Report Articles Cited

Novo Nordisk’s brief cites a July 2020 340B Report article about the U.S. Health Resources and Services Administration’s (HRSA) statement to us that its 2010 contract pharmacy guidance was still in effect but that guidance is not legally enforceable.

Sanofi’s brief cites both the July 2020 340B Report article and a March 2020 340B Report article about HRSA’s statement to us that it did not plan to put forth rulemaking to create a binding 340B ADR process “until such time that HRSA receives regulatory authority for the issues that would be addressed” in such a process.

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