Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 1 of 71
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF MARYLAND
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`CIV. NO. 1:20-cv-03531
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`ADMINISTRATIVE PROCEDURES ACT
`REVIEW OF AGENCY DECISION
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`COMPLAINT
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`ASSOCIATION OF COMMUNITY
`CANCER CENTERS, on behalf of itself and
`its members; GLOBAL COLON CANCER
`ASSOCIATION, on behalf of itself and its
`members; NATIONAL INFUSION CENTER
`ASSOCIATION, on behalf of itself and its
`members; and PHARMACEUTICAL
`RESEARCH AND MANUFACTURERS OF
`AMERICA, on behalf of itself and its
`members,
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`Plaintiffs,
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`vs.
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`ALEX M. AZAR II, in his official capacity as
`Secretary of the U.S. Department of Health
`and Human Services; the U.S.
`DEPARTMENT OF HEALTH AND
`HUMAN SERVICES; SEEMA VERMA, in
`her official capacity of Administrator of the
`Centers for Medicare and Medicaid Services;
`CENTERS FOR MEDICARE AND
`MEDICAID SERVICES; BRAD SMITH, in
`his official capacity as the Director of the
`Center for Medicare and Medicaid Innovation;
`CENTER FOR MEDICARE AND
`MEDICAID INNOVATION,
`Defendants.
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 2 of 71
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`Plaintiffs the Association of Community Cancer Centers; the Global Colon Cancer
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`Association; the National Infusion Center Association; and the Pharmaceutical Research and
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`Manufacturers of America allege as follows:
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`INTRODUCTION
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`1.
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`For years, the Trump Administration urged major revisions to the Medicare Part B
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`reimbursement system that would have substituted foreign price controls for the market-based
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`approach adopted by Congress. The Administration recognized that such a fundamental change
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`could be undertaken only by new legislation, and it urged Congress to act. But this summer, the
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`President decided to proceed on his own initiative. “We’ve been waiting for Congress to take
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`action for many decades to reduce drug prices,” he announced. “I’m unwilling to wait any
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`longer.”1 Lacking “any meaningful legislative support,” the Trump Administration implemented
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`administratively—without even going through standard notice-and-comment procedures—what it
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`calls a “historic” and “transformative” effort to “completely restructure the prescription drug
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`market, in terms of pricing and everything else.”2
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`2.
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`The Administration is only too right about that: Its new regulation will lead to
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`delays and disruptions in drug access, jeopardizing critical care for millions of patients; by the
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`Administration’s own estimates, it will achieve much of its cost savings from “beneficiaries not
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`accessing their drugs through the Medicare benefit, along with the associated lost utilization.”3 In
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`1 Remarks by President Trump at Signing of Executive Orders on Lowering Drug Prices (July 24,
`2020), https://www.whitehouse.gov/briefings-statements/remarks-president-trump-signing-executive
`-orders-lowering-drug-prices (July 2020 White House Remarks).
`2 Remarks by President Trump on Delivering Lower Prescription Drug Prices for All Americans
`(Nov. 20, 2020), https://www.whitehouse.gov/briefings-statements/remarks-president-trump-
`delivering-lower-prescription-drug-prices-americans (Nov. 2020 White House Remarks); July
`2020 White House Remarks, supra, at note 1.
`3 Most Favored Nation (MFN) Model, 85 Fed. Reg. 76,180, 76,237 (Nov. 27, 2020) (MFN Rule)
`(emphasis added).
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`2
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 3 of 71
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`fact, the Administration has projected a 19% decline in utilization from lost access at non-340B
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`providers.4 The new regulation will also shortchange healthcare providers by reimbursing them a
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`fraction of what they have already paid for critical medicines. And it will slash the funds available
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`for pharmaceutical research and development, resulting in far fewer innovative medicines.
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`3.
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`In this action, Plaintiffs challenge this overreach, which is unauthorized by statute
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`and fundamentally inconsistent with our constitutional system of government. Under the Medicare
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`statute—the approach duly approved by Congress and enacted into law—reimbursement for
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`prescription drugs covered under the Part B program is based on average prices actually paid for
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`drugs domestically. But the new regulation by the Centers for Medicare and Medicaid Services
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`(CMS), known as the Most Favored Nation Rule (MFN Rule), implements a novel, mandatory,
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`and nationwide payment scheme. Unlike a market-based approach, the Rule bases reimbursement
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`on the lowest price available in any one of almost two dozen other countries—regardless of how
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`those countries have chosen to structure their healthcare systems, the (dis)incentives they provide
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`for pharmaceutical innovation, or the limitations they place on patients’ ability to access these
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`medications. By the President’s own admission, the MFN Rule “will transform the way the U.S.
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`government pays for drugs.” Nov. 2020 White House Remarks, supra.
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`4.
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`The Administration purports to derive the authority to supersede Congress’s work
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`from Section 1115A of the Social Security Act, as added by the Affordable Care Act. Yet Section
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`1115A does not grant CMS anything like the authority it would need to issue a regulation as far-
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`ranging as the MFN Rule. Once described by four Supreme Court Justices as one of the more
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`“minor” and “ancillary” provisions added by the Affordable Care Act, NFIB v. Sebelius, 567 U.S.
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`519, 704–05 (2012) (joint dissent), Section 1115A creates the “Center for Medicare and Medicaid
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`4 MFN Rule, 85 Fed. Reg. at 76,237 tbl.11 (emphasis added).
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 4 of 71
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`Innovation” (CMMI), a sub-agency charged with “test[ing] innovative payment and service
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`delivery models,” 42 U.S.C. § 1315a(a)(1). By law, CMMI is authorized to test models that
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`address “a defined population for which there are deficits in care leading to poor clinical outcomes
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`or potentially avoidable expenditures.” Id. § 1315a(b)(2)(A). CMMI may waive parts of the
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`Medicare statute and certain other parts of the Social Security Act during model tests, but only “as
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`may be necessary” for the “sole[]” purpose of testing the model. Id. § 1315a(d)(1). If—and only
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`if—an initial pilot test proves successful based on statutorily specified criteria and a certification
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`from the CMS Chief Actuary, then CMMI may follow certain prescribed procedures to “expand
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`. . . the duration and the scope of [the] model” to a second phase, including the option of
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`“expand[ing] . . . the scope of a model” “on a nationwide basis.” Id. § 1315a(c).
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`5.
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`Or at least that is how the law is written—and how it was supposed to work. CMS
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`is now attempting to use this modest “test” authority to “transform drug pricing forever.” Nov.
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`2020 White House Remarks, supra. In doing so, CMS has far exceeded its statutory authority
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`under Section 1115A. The MFN Rule is not an initial pilot “test.” Nor does it “address a defined
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`population” with identified “deficits in care”; indeed, it affirmatively harms patients in the short
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`and long terms, securing its immediate cost savings in large part through the rationing of care. The
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`Rule also skips the two-step statutory process of “test[ing]” and then “expan[sion],” 42 U.S.C.
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`§ 1315a(c), in favor of an immediate rollout in all 50 states and U.S. territories. With no control
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`group, with “mandatory, nationwide participation,” MFN Rule, 85 Fed. Reg. at 76,188, and with
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`an immediate intended impact on the overwhelming majority of Medicare Part B drug spending,
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`the MFN Rule lacks any pretense to being the sort of limited “test” of a Phase I “model” that
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`Congress authorized under Section 1115A. The MFN Rule is instead among “the most far-
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`reaching prescription drug reforms ever issued.” July 2020 White House Remarks, supra.
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`6.
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`CMS’s interpretation of Section 1115A would arrogate virtually unlimited power
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`to the agency to revise the Medicare program in its sole discretion. If CMS can launch
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`comprehensive, nationwide models of its own design while waiving virtually all of Medicare Part
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`B, nothing stops it from replacing any other part of Medicare—or even the whole thing. The
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`damage to the separation of powers is manifest. CMS is claiming the authority to use the
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`congressionally enacted Medicare statute as a suggestion, which it may keep, revise, or discard on
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`its way to a healthcare system fully designed, implemented, and enforced in-house by the
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`Executive Branch.
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`7.
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`Compounding these harms, CMS has not permitted the public to have any real say
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`in this “overhaul.” CMS jettisoned the notice-and-comment process ordinarily required for
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`rulemaking and instead issued the MFN Rule as an “interim final rule,” effective immediately.
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`Although the Administration has been considering proposals for basing Medicare reimbursements
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`on international prices for almost three years, CMS attempts to justify this evasion of procedure
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`by claiming that its hand was forced by the COVID-19 pandemic—an emergency so sudden that
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`it apparently did not stir CMS to action at any point during the ten months since COVID-19 had
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`been declared a public health emergency. By short-circuiting the notice-and-comment process,
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`CMS deprived the public of the opportunity to point out the many shortcomings of the MFN Rule
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`before it became effective, including how it will harm patients in both the short and long terms by
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`reducing drug availability and development.
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`8.
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`The MFN Rule is unlawful on several procedural and substantive grounds:
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`a.
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`The MFN Rule does not qualify as a “test” of a “model” that addresses the
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`“deficits in care” of “a defined population,” but rather is, as the President acknowledged, a
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`nationwide attempt to “completely restructure the prescription drug market, in terms of
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 6 of 71
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`pricing and everything else.” July 2020 White House Remarks, supra. The Rule thus
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`exceeds CMMI’s limited regulatory authority under Section 1115A.
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`b.
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`CMS nevertheless claims authority under Section 1115A to effectively
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`repeal and replace key provisions of the Medicare statute, as well as other important
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`provisions of the Social Security Act. But if Section 1115A in fact vested the agency with
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`such expansive power, then Section 1115A would violate the Constitution’s requirement
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`of bicameralism and presentment.
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`c.
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`If accepted, CMS’s claim of authority under Section 1115A to overhaul the
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`Medicare pricing system as the agency sees fit would also violate the Constitution’s bar on
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`the delegation of legislative power to the Executive Branch.
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`d.
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`Congress committed the testing authority in Section 1115A to the sole
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`discretion of the Secretary of Health and Human Services, but President Trump usurped
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`that authority by commanding the Secretary to adopt the MFN Rule. The President may
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`not ignore the statute and commandeer discretion that has been entrusted to another
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`executive officer by directing that officer to reach a particular conclusion.
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`e.
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`Because the MFN Rule was issued as an immediately effective interim final
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`rule, without any notice or opportunity for public comment on a proposed rule, it violates
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`the procedural safeguards of the Administrative Procedure Act (APA).
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`9.
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`The MFN Rule will irreparably harm patients, care providers, physicians,
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`pharmaceutical manufacturers, and the broader public interest in innovation and discovery in the
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`pharmaceutical field. The Rule will significantly harm patients; shortchange physicians and other
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`healthcare providers, resulting in reduced access to covered drugs; force pharmaceutical
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`manufacturers to accept steep price reductions and potentially delay launches in certain markets,
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 7 of 71
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`further reducing patient access; and threaten long-term public health through cutbacks in research
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`and development of new drugs.
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`10.
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`For these reasons, and as explained below, Plaintiffs seek a preliminary and
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`permanent injunction against the enforcement of the MFN Rule, including a temporary restraining
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`order, a declaration that the MFN Rule is unconstitutional and invalid, and other appropriate relief.
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`JURISDICTION AND VENUE
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`11.
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`This Court has jurisdiction pursuant to 28 U.S.C. § 1331 (action arising under the
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`laws of the United States), id. § 1346 (United States as a defendant), and 5 U.S.C. §§ 701–06
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`(APA). An actual controversy exists between the parties within the meaning of 28 U.S.C.
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`§ 2201(a), and this Court may grant declaratory relief, injunctive relief, and other relief pursuant
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`to 28 U.S.C. §§ 2201–02 and 5 U.S.C. §§ 705–06.
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`12.
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`Although Congress has barred judicial review of some CMMI decisions, see 42
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`U.S.C. § 1315a(d)(2), such limitations do not apply to Plaintiffs’ claims in this case, which involve
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`constitutional challenges, the agency’s authority to implement the MFN Rule, see Amgen, Inc. v.
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`Smith, 357 F.3d 103, 113 (D.C. Cir. 2004) (such claims not barred by comparable provision), and
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`the propriety of agency action without notice-and-comment rulemaking, cf. 42 U.S.C.
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`§ 1315a(d)(2) (not limiting such challenges).
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`13.
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`Defendants’ publication of the Rule in the Federal Register on November 27, 2020,
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`constitutes a final agency action and is therefore judicially reviewable under the APA. 5 U.S.C.
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`§§ 704, 706.
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`14.
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`Venue is proper in this Court under 28 U.S.C. § 1391(e) because this action seeks
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`relief against federal agencies and officials acting in their official capacities, some Defendants are
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 8 of 71
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`located in this district, and a substantial part of the events or omissions giving rise to the claim
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`occurred in this district.
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`THE PARTIES
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`15.
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`The Association of Community Cancer Centers (ACCC) is a non-profit corporation
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`organized and existing under the laws of the State of California, with its headquarters located in
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`Maryland. It is a community of more than 25,000 multidisciplinary practitioners and 2,100 cancer
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`programs and practices nationwide, who together treat roughly 65% of the nation’s cancer patients.
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`Founded in 1974, ACCC brings together healthcare professionals across all disciplines in oncology
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`to promote quality cancer care. Its members rely on ACCC for education and advocacy support
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`in adapting and responding to complex changes and challenges in the delivery of quality cancer
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`care. ACCC’s members will be adversely affected by the MFN Rule because the Rule will reduce
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`the rates at which many of the association’s providers are reimbursed, forcing ACC’s members to
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`make cuts across departments and negatively impacting members’ ability to serve patients.
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`16.
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`The Global Colon Cancer Association (GCCA) is a non-profit corporation
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`organized and existing under the laws of the State of Delaware, with its headquarters located in
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`Pennsylvania. It acts as the voice for the millions of colon cancer patients worldwide by promoting
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`access to quality medical treatments, advocating for patient-centered policy to ensure increased
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`awareness and screening, and helping its member organizations collaborate and innovate. GCCA
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`also supports the creation of new patient advocacy groups in developing areas that have no colon
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`cancer organizations. The vision of GCCA is to create a global community in which people around
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`the world can unite and battle this disease with one unified voice. Colon cancer patients participate
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`directly in GCCA’s activities. GCCA maintains a support community of 4,500 patients and
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`caregivers, approximately half of whom are in the United States. And over 100 colon cancer
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 9 of 71
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`patients and survivors participated in GCCA’s recent Global Colorectal Cancer Congress, an
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`international gathering dedicated to advancing knowledge, research, and treatment of colorectal
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`cancer. Numerous colon cancer patients rely on drugs covered under the MFN Rule and will be
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`adversely affected by short-term changes in providers’ prescribing practices in response to the
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`Rule, as well as by lost longer-term opportunities for new and innovative colon cancer treatments.
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`17.
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`The National Infusion Center Association (NICA) is a nonprofit corporation
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`organized and existing under the laws of the State of Texas, with its headquarters located in Texas.
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`It is the nation’s voice for non-hospital, community-based infusion providers that offer a safe,
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`more efficient, and more cost-effective alternative to hospital care settings for provider-
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`administered medications. NICA’s purpose is to ensure that patients can access safe, viable, and
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`sustainable non-hospital healthcare delivery channels through which they can receive provider-
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`administered medicines. Millions of patients rely on these medications to manage complex and
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`chronic diseases, including autoimmune diseases like ulcerative colitis, multiple sclerosis, and
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`lupus. NICA’s efforts are focused on promoting patient safety and care quality, ensuring delivery-
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`channel sustainability and expansion, buy-and-bill protection, and improving treatment adherence.
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`It supports policies that improve drug affordability for beneficiaries, reduce disparities in quality
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`of care and safety across care settings, and enable care delivery in the highest-quality, lowest-cost
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`care setting. The MFN Rule will adversely affect many of NICA’s infusion provider members by
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`restricting and disrupting access for many of their Part B patients, reducing the rates at which the
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`providers are reimbursed and threatening their ability to continue serving patients.
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`18.
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`Pharmaceutical Research and Manufacturers of America (PhRMA) is a non-profit
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`corporation organized and existing under the laws of the State of Delaware, with offices located
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`in Washington, D.C. PhRMA members are the country’s leading research-based pharmaceutical
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 10 of 71
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`and biotechnology companies and are devoted to discovering and developing new medications that
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`allow people to live longer, healthier, and more-productive lives. Since 2000, PhRMA members
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`have invested approximately $1 trillion in the search for new treatments and cures, including an
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`estimated $83 billion in 2019 alone. PhRMA serves as the research-based pharmaceutical
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`industry’s principal policy advocate, representing its members’ interests in matters before
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`Congress, the Executive Branch, state regulatory agencies and legislatures, and the courts.
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`PhRMA is committed to advancing public policies that foster continued medical innovation and
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`educating the public about the drug development and discovery process. PhRMA members sell
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`35 of the 50 drugs initially subject to MFN pricing, which will be reimbursed at international MFN
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`prices well below the current Medicare Part B reimbursement price, and will be adversely affected
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`by the MFN Rule. See MFN Rule, 85 Fed. Reg. at 76,194 tbl.2. A list of PhRMA members can
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`be found at www.phrma.org.
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`19.
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`Defendant Alex M. Azar II is the Secretary of the United States Department of
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`Health and Human Services (HHS). He oversees, among other things, CMS and the Medicare
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`program. He is sued in his official capacity.
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`20.
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`Defendant HHS is an executive department of the United States Government
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`headquartered in Washington, D.C., and is responsible for CMS and the Medicare program.
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`21.
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`Defendant Seema Verma is the CMS Administrator. She administers the Medicare
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`program on behalf of the Secretary and oversees CMMI’s activities. She is sued in her official
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`capacity.
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`22.
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`Defendant CMS is an administrative agency within HHS that is headquartered in
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`Baltimore County, MD, and that administers the Medicare program.
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`23.
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`Defendant Brad Smith is the Director of CMMI and CMS Deputy Administrator.
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`He is sued in his official capacity.
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`24.
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`Defendant CMMI is a sub-agency within CMS that is also headquartered in
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`Baltimore County, MD.
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`BACKGROUND
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`Pharmaceutical Innovation Thrives on Investment in Research and Development
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`25.
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`PhRMA’s members develop life-saving and life-enhancing medicines that are
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`promoted, prescribed, and sold throughout the nation and the world. Between 2000 and 2019, the
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`U.S. Food and Drug Administration (FDA) approved more than 600 new drugs. Asher Mullard,
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`2019 FDA Drug Approvals, 19 Nature 79, 81 fig.1 (Feb. 2020), https://go.nature.com/3iFdP3E.
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`PhRMA’s members were responsible for much of this innovation, including nearly half of the
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`novel drugs approved last year. Id. at 80–81 tbl.1.
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`26.
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`As biopharmaceutical companies build on new technologies and advances in
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`scientific knowledge, they continue to develop groundbreaking therapies to combat and potentially
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`to cure devastating diseases afflicting patients. One of the most important priorities for PhRMA
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`and its members right now is developing vaccines and treatments for COVID-19, the disease
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`caused by a novel strain of coronavirus. As of November 2020, there were more than 1,680 clinical
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`trials testing a variety of COVID-19 treatments and vaccines. PhRMA, The Biopharmaceutical
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`Industry Is Leading the Way in Developing New Vaccines and Treatments for COVID-19 1 (Nov.
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`2, 2020), https://onphr.ma/35Up8la. The United States Government has chosen several of the
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`most-promising vaccine candidates for Operation Warp Speed, a public–private partnership aimed
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`at delivering 300 million doses of a safe and effective vaccine by January 2021. PhRMA is proud
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`to count its members among four of the five teams originally chosen. See Noah Weiland & David
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 12 of 71
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`E. Sanger, Trump Administration Selects Five Coronavirus Vaccine Candidates as Finalists, N.Y.
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`Times (last updated July 27, 2020), https://nyti.ms/3iTUGLF. Several members have already
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`reported promising positive results for their COVID-19 vaccine candidates and have sought or
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`plan to seek emergency use authorizations from the FDA. Noah Weiland & Katie Thomas, Pfizer
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`Applies for Emergency F.D.A. Approval for Covid-19 Vaccine, N.Y. Times (Nov. 20, 2020),
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`https://nyti.ms/2Kr8HUR.
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`27.
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`Pharmaceutical researchers are also currently researching and developing a wide
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`array of therapies for other life-threatening and debilitating diseases, including developing another
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`vaccine to protect against the Ebola virus, homing in on a long-acting injectable capsid inhibitor
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`to be used as an anti-retroviral treatment for HIV infections, and working on nearly 600 cutting-
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`edge medicines to meet the unique needs of pediatric patients. See Am.’s Biopharmaceutical Cos.,
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`Medicines in Development 2020 Report: Vaccines 3 (Apr. 2020), https://onphr.ma/2Crvw7i;
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`Am.’s Biopharmaceutical Cos., Medicines in Development 2020 Report: Infectious Diseases 3
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`(July 2020), https://onphr.ma/2FtCdqR; Am.’s Biopharmaceutical Cos., Medicines
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`in
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`Development 2020 Report: Children 1 (Jan. 2020), https://onphr.ma/2PSX4FN. Pharmaceutical
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`companies are also working on more than 350 novel cell and gene therapies, including nearly 200
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`that treat cancer. See Am.’s Biopharmaceutical Cos., Medicines in Development 2020 Update:
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`Cell and Gene Therapy 1–2 (Feb. 2020), https://onphr.ma/3fY6wSX. One of the most cutting-
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`edge and promising areas of development is immuno-oncology, which aims to harness the body’s
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`immune system to fight cancer. See Sophie Carter & David E. Thurston, Immuno-Oncology
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`Agents for Cancer Therapy, Pharm. J. (May 7, 2020), https://bit.ly/2VxzuBk. Recent discoveries
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`and clinical advances in the area have already begun improving outcomes and survival rates for
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`some patients, including those with skin, kidney, and lung cancer. See id. The objective is to
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`eventually replace chemotherapy as the first-line treatment for many cancers and thus help patients
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`live longer, healthier lives. See id.
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`28.
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`However, every life-saving or life-enhancing drug comes at a stunning
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`development cost. On average, a manufacturer will spend nearly $3 billion developing one new
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`medicine. See Joseph A. DiMasi et al., Innovation in the Pharmaceutical Industry: New Estimates
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`of R&D Costs, 47 J. Health Econ. 20, 25–26 (2016), https://bit.ly/30UAIdg. Some pharmaceutical
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`companies have invested an average of over $10 billion per new drug. Alexander Schuhmacher
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`et al., Changing R&D Models in Research-Based Pharmaceutical Companies, 14 J. Translational
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`Med., no. 105, 2016, at 3–4, https://bit.ly/2PWRKRC.
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`29.
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`Funding the research and development of new life-saving and life-enhancing drugs
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`is a constant gamble. Only one in 5,000 compounds that enter preclinical testing will achieve FDA
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`approval for therapeutic use, a failure rate of 99.98%. Sandra Kraljevic et. al., Accelerating Drug
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`Discovery, 5 Eur. Molecular Biology Org. Reps., no. 9, 2004, at 837, https://bit.ly/2Y2gwEK. Of
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`the therapies that do reach market, merely one-third manage to even cover their cost of
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`development, much less turn a significant profit. See Council of Econ. Advisers, Funding the
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`Global Benefits to Biopharmaceutical Innovation 7 fig.3 (Feb. 2020), https://www.whitehouse.
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`gov/wp-content/uploads/2020/02/Funding-the-Global-Benefits-to-Biopharmaceutical-
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`Innovation.pdf (2020 CEA Report).
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`30. Moreover, the required investments in time and expense to research and develop
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`innovative new drugs are continually increasing. Over the last 60 years, research and development
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`costs in the pharmaceutical industry have increased 8.6% annually, even after adjusting for
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`inflation. Schuhmacher et al., supra, at 3. One study found that from 2003 to 2013, the cost of
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`developing a prescription drug that gains market approval soared 145%. See DiMasi et al., supra,
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`Case 1:20-cv-03531-CCB Document 1 Filed 12/04/20 Page 14 of 71
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`at 28. It now takes an average of ten to fifteen years to develop a new drug. See id. at 25–26.
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`Some of the most important factors behind these increases are that clinical drug development takes
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`more time as the necessary research grows more complicated, the drugs themselves (especially
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`biologicals) are becoming more complex, and demands by regulatory authorities and payers are
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`escalating. Schuhmacher et al., supra, at 4, 6.
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`31.
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`Other factors have simultaneously reduced the returns on the drugs that do make it
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`to market. For example, drug treatments are becoming increasingly personalized, taking into
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`consideration a patient’s “genetic, anatomical, and physiological characteristics,” FDA, Paving
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`the Way for Personalized Medicine 4 (Oct. 2013), https://www.fdanews.com/ext/resources/files/
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`10/10-28-13-Personalized-Medicine.pdf, which both increases development costs and reduces the
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`patient population that can defray those costs. These targeted drugs are often critical in treating
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`serious but rare illnesses. Last year, FDA approved eleven personalized medicines with specific
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`biological markers to help guide prescribers’ decisions; the year before, it approved 25, which
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`constituted 42% of all FDA-approved therapeutic products that year. Personalized Med. Coal.,
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`Personalized Medicine at FDA: The Scope & Significance of Progress in 2019, at 3,4 (2020),
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`https://bit.ly/343D1N8; Mullard, supra, at 81 fig.1.
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`32.
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`In short, the task facing most pharmaceutical companies is staggering. They must
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`risk billions and billions of dollars researching compounds, only 0.02% of which will ever reach
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`market, and only a further third of which will ever recoup development costs. Every year, the odds
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`get longer.
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`33.
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`Pharmaceutical companies must sustain these constant, high-risk gambles on only
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`a single prospect—that, if a product reaches market and fills a dire patient need in the healthcare
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`field, it will earn market-based returns.
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`Congress Has Established a Reimbursement System That Encourages Innovation
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`34.
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`Congress has recognized both the critical need for robust medical research and the
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`unique challenges facing the pharmaceutical industry. For that reason, it has enacted and refined
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`a drug pricing system that creates incentives for continued investment in this area—specifically, a
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`carefully calibrated regime that rewards innovators with certain exclusive rights and the
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`opportunity for market-based returns.
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`35.
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`Under the federal patent laws, innovation is rewarded primarily by granting a patent
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`holder the exclusive right to make, use, and sell the patented invention for a limited period of time.
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`35 U.S.C. § 154. Most recently, Congress has concluded that patent holders are generally entitled
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`to exclusive use of their inventions for up to twenty years from the application date—and possibly
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`less, given the time necessary for clinical trials and the regulatory process. Id. During that period,
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`federal law protects the patent by prohibiting patent infringement, defined as the unauthorized
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`making, using, offering for sale, or selling of any patented invention within the United States. Id.
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`§ 271(a).
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`36.
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`Congress has often fine-tuned the particular incentives offered by the patent system,
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`including by supplementing the patent laws with laws applicable to pharmaceuticals specifically.
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`In 1984, for example, Congress provided for the extension of the patent term of prescription drugs
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`subject to FDA approval in the Drug Price Competition and Patent Term Restoration Act of 1984,
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`Pub. L. No. 98-417, 98 Stat. 1585 (codified at 15 U.S.C. §§ 68b et seq.), popularly known as the
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`Hatch-Waxman Act. As federal courts have observed, the public benefits significantly from these
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`additional incentives to innovate. See Glaxo, Inc. v. Novopharm, Ltd., 110 F. 3d 1562, 1568 (Fed.
`
`Cir. 1997); Pfizer Inc. v. Dr. Reddy’s Lab’ys, Ltd., 359 F.3d 1361, 1364 (Fed. Cir. 2004).
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`37.
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`Congress has further adjusted incentives for research and development in the
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`pharmaceutical field through subsequent supplemental legislation. In the Food and Drug
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`Administration Modernization Act of 1997, Pub. L. No. 105-115, 111 Stat. 2296, for example,
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`Congress permitted the FDA to award additional incentives, in the form of extended market
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`exclusivity, for the development of pediatric medications. See 21 U.S.C. § 355a. Congress has
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`also used market exclusivity to encourage investment in drugs for rare conditions or diseases in
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`the Orphan Drug Act, Pub. L. 97-414, 96 Stat. 2049, and the amendments thereto. See 21 U.S.C.
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`§§ 360aa–360dd.
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`38.
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`That the patent laws are Congress’s prerogative is clear from the Constitution itself.
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`See U.S. Const. art. I, § 8, cl. 8. As the Supreme Court has recognized, “it is Congress that has
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`been assigned the task of defining the scope of the limited monopoly that should be granted to
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`authors or to inventors in order to give the public appropriate access to their work product.” Sony
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`Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984). And Congress has gone
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`to extraordinary lengths to strike the proper balance of exclusivity and economic competition for
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`patented prescription drugs.
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`39.
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`Critically, the grant of the exclusive right to use and sell a product also conveys the
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`right to sell the product at the market price that exclusivity permits, which gives patents their
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`economic value and encourages invention. Biotechnology Indus. Org. v. District of Columbia, 496
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`F.3d 1362, 1373 (Fed. Cir. 2007) (“Congress has decided that patentees’ present amount of
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`exclusionary power, the present length of patent terms, and the present conditions for patentability
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`represent the best balance between exclusion and free use.”). The Supreme Court and Congress
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`have long recognized that it is in large part