Pharmaceutical giant Merck has filed a lawsuit in the US District Courts against the federal government alleging that the drug pricing clauses of the Inflation Reduction Act of 2022 violates the First and Fifth Amendments to the US Constitution. Although prior judgements raise questions about the First Amendment claim, there are some indications that the Fifth Amendment claim could have potential, says GlobalData, a leading data and analytics company.

Jay Patel, Pharma Analyst at GlobalData, comments: “The judicial response to industry lawsuits on drug pricing regulations have been mixed in the past. Previously, the Pharmaceutical Research and Manufacturers of America (PhRMA) brought a similar claim on First Amendment grounds against California, alleging that requirements for public notification and explanation of drug price increases violated free expression. However, the US District Judge sided with the state and dismissed the lawsuit.

“Should the judge in this case take a similar approach – which is not guaranteed, given that District Court judgements are not binding precedent – the First Amendment claim is likely to fail. However, the Inflation Reduction Act goes further than the California legislation with its requirement for drug manufacturers to convey agreement to the federal government’s prices, so an alternative conclusion cannot be ruled out.”

The Fifth Amendment-based strategy in the Merck lawsuit, which has yet to be tested in federal courts, appears to have a chance of yielding results. The Takings Clause of the Fifth Amendment prohibits the government from taking private property for public use without just compensation. The fundamental legal questions are whether the drug patents held by Merck would constitute protected private property and whether this Act would constitute a taking under the Takings Clause, issues that federal appellate courts have yet to address.

Patel concludes: “The US Supreme Court’s previous ruling in Ruckelshaus v. Monsanto recognized trade secrets – another form of intellectual property – as protected private property, bolstering Merck’s claim. Ultimately, based on the narrow rules for compensation in Takings Clause cases outlined in Penn Central v. New York City, the decision on whether the Act constituted a taking would depend on the scale of the economic impact that the Inflation Reduction Act had on Merck. According to GlobalData, 31% of biopharmaceutical industry professionals identified drug pricing and reimbursement constraints as the factor which would have the biggest negative impact on the industry in 2023. Consequently, there could well be an opening for Merck’s litigation to succeed.”