Pharmaceutical Research and Manufacturers of America v. Elizabeth Landsberg

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA,
Plaintiff-Appellant,
v.
ELIZABETH LANDSBERG, in her official
capacity as Director of the California Office
of Statewide Health Planning and
Development,
Defendant-Appellee.
No. 21-16312
D.C. No.
2:17-cv-02573-MCE-KJN
MEMORANDUM*
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.
FILED
JUL 25 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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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.

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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

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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.

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