AbbVie Inc. v. Morrisey

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA

CHARLESTON DIVISION

PHARMACEUTICAL RESEARCH AND

MANUFACTURERS OF AMERICA,

Plaintiff,

v. CIVIL ACTION NO. 2:24-cv-00271

PATRICK MORRISEY,

in his official capacity as

Attorney General of West Virginia, et al.,

Defendants.

* * * * *

NOVARTIS PHARMACEUTICALS CORPORATION,

Plaintiff,

v. CIVIL ACTION NO. 2:24-cv-00272

PATRICK MORRISEY,

in his official capacity as Attorney General

of the State of West Virginia, et al.,

Defendants.

* * * * *

ABBVIE INC. et al.,

Plaintiffs,

v. CIVIL ACTION NO. 2:24-cv-00298

PATRICK MORRISEY

in his official capacity as the

West Virginia Attorney General, et al.,

Defendants.

MEMORANDUM OPINION AND ORDER

Pending before the Court are several motions. The first three are motions by

Pharmaceutical Research and Manufactures of America, Inc. (“PhRMA”), Novartis

Pharmaceuticals Corporation (“Novartis”), and AbbVie Inc. (“AbbVie”) (collectively

“Plaintiffs”). Plaintiffs have each moved for a preliminary injunction under Federal Rule of Civil

Procedure 65. (Case No. 2:24-cv-00271, ECF No. 20); (Case No. 2:24-cv-00272, ECF No. 6);

(Case No. 2:24-cv-00298, ECF No. 7). In response to PhRMA’s motion, defendants—which

include West Virginia Attorney General Patrick Morrisey among other West Virginia officials

(collectively “Defendants”)—moved to dismiss PhRMA’s case because “PhRMA lacks

associational standing to assert the claims and claims for relief that it brings in this action.” (Case

No. 2:24-cv-00271, ECF No. 34.) For the reasons discussed below, Plaintiffs’ motions are

GRANTED and Defendants’ motion is DENIED.

I. BACKGROUND

A. The 340B Program

In 1992, Congress enacted the Veterans Health Care Act (“the Act”). (Case No. 2:24-cv-

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00272, ECF No. 28 at 8.) Part of the Act included a bargain with drug manufacturers: in exchange

for being reimbursed under the Medicare Part B and Medicaid programs, drug manufacturers were

required to offer discounts to “covered entities.” (Id.) These covered entities, defined now by

42 U.S.C. § 256b(a)(4), would receive a discount based on a formula outlined in § 256b(a)(2) of

the Act. (See Case No. 2:24-cv-00272, ECF No. 28 at 8.) Known as the “340B Program,”1 this

scheme was a part of Congress’s larger goal of combating rising drug costs on state funded

Medicaid programs. (Id.) As required by the 340B Program, a manufacturer “shall . . . offer

each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price

if such drug is made available to any other purchaser at any price.” 42 U.S.C. § 256b(a)(1). This

pricing scheme enables covered entities to “stretch scarce federal resources as far as possible,

reaching more eligible patients and providing more comprehensive services.” (Case No. 2:24-cv-

00272, ECF No. 28 at 9 (citing H.R. Rep. No. 102-384, pt. 2, at 12).)

The covered entities of the 340B Program are not low-income patients themselves. Nor

are they pharmacies per se. Instead “covered entities” are largely “local facilities that provide

medical care for the poor.” Astra USA, Inc. v. Santa Clara County, 563 U.S. 110, 115 (2011); see

also 42 U.S.C. § 256b(a)(4)(A)–(O). The requirement that covered entities be offered a

discounted price via the 340B Program is reflected in a contract that runs between drug

manufacturers and the Department of Health and Human Services (“HHS”), the 340B Program

administrator. See Astra, 563 U.S. at 113. These form contracts do not include covered entities

as parties to the contract. Rather, the covered entities are merely third-party beneficiaries that

1 The term “340B” derives from Section 340B of the Public Health Service Act, which was originally passed in 1944.

The use of 340B as a shorthand to describe drug price reduction for covered entities became popularized following

the term’s usage throughout the Veterans Health Care Act of 1992. See generally 106 Stat. 4962–71 (1992).

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have little to no enforcement power. See id.

As part of the 340B Program, Congress required HHS to create program enforcement rules.

Specifically, Congress required HHS to “promulgate regulations to establish and implement an

administrative process for the resolution of claims.” 42 U.S.C. § 256b(d)(3)A). This dispute

resolution program is meant to resolve two types of claims. First, covered entities may seek

resolution when they believe “they have been overcharged for drugs purchased under [the 340B

Program].” Id. Second, Congress required a program that allows for “claims by manufacturers

. . . of violations of subsections (a)(5)(A) or (a)(5)(B)” of the Act. Id. Before a manufacturer

may raise such a claim, Congress requires that manufacturers first “conduct . . . audits as authorized

by subsection (a)(5)(C)” of the Act. Id.

As for the 340B audit provision, Congress vested authority to conduct audits in both HHS

and manufacturers. The 340B Program states that “[a] covered entity shall permit [HHS and a

manufacturer] . . . to audit . . . the records of the entity that directly pertain to the entity’s

compliance with the requirements described in subparagraphs (A) or (B) with respect to drugs of

the manufacturer.” 42 U.S.C. § 256b(a)(5)(C). These audits enable the manufacturers to verify

compliance with the prohibition on duplicate discounts, such as prescriptions already discounted

by Medicare, and for prohibiting the resale of program discounted drugs. See 42 U.S.C. §

256b(a)(5)(A)–(B). As such, HHS promulgated regulations under 42 C.F.R. § 10.21 (2024).

Like the Act itself, § 10.21 also requires an audit prior to starting a dispute resolution claim. See

42 C.F.R. § 10.21(a)(2) (“Claims by a manufacturer, after it has conducted an audit of a covered

entity . . . .”).

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B. The “Replenishment Model”

Many of the 340B covered entities do not have their own in-house pharmacies. (Case No.

2:24-cv-00272, ECF No. 28 at 10.) Instead, covered entities rely on independent, retail

pharmacies to serve their prescription filling needs. (Id.) These pharmacies are known as

“contract pharmacies” who, although otherwise prohibited from purchasing drugs under the 340B

Program, are permitted to do so through an arrangement with the covered entity. (Id. at 11.)

Under this system, covered entities purchase and take title to the manufacturer’s drugs, while

contract pharmacies take physical possession. (Id.) This system, not unique to covered entities,

appears to have existed as an unofficial operation of the 340B Program for years. (See id. at 11–

12.)

The operating model for distributing drugs under the 340B Program is known as the

“replenishment model.” Under this model, a contract pharmacy sells its existing stockpile of

drugs to patients. (See Case No. 2:24-cv-00272, ECF No. 7 at 14.) Only after both drug and

patient have left the pharmacy does the covered entity designate the distributed drug as 340B

Program eligible, making it available at the 340B price. (See id.) The contract pharmacy then

replaces its distributed drug with a new one ordered by the covered entity at the 340B price. (Id.);

see also Novartis Pharmaceuticals Corp. v. Johnson, 102 F.4th 452, 457 (D.C. Cir. 2024) (“Once

the pharmacy or the administrator categorizes a certain number of prescriptions as eligible, the

pharmacy places an order to replenish its section 340B purchases.”). The contract pharmacy then

“comingles the 340B-purchased unit with” those available to the general public, and “thus is

available for dispensing to anyone, including a non-patient of the covered entity.” (Case No.

2:24-cv-00272, ECF No. 7 at 14.) This model was not disputed by Defendants as the operative

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system at the hearing on this preliminary injunction motion.2 See Prelim. Inj. Hr’g Tr. (Case No.

2:24-cv-00272, ECF No. 53 at 72 (“The pharmacy goes ahead and fills it on the spot and submits

the -- if the patient has insurance, if they have Medicare/Medicaid reimbursement. It passes that

up the line and that process plays itself out so that the patient isn’t burdened with the 340B

mechanism.”).)

C. West Virginia S.B. 325 and Procedural History

According to Defendants and Amici,3 the utilization of contract pharmacies by covered

entities remained undisturbed until July of 2020. (See Case No. 2:24-cv-00272, ECF No. 28 at

12); (Case No. 2:24-cv-00272, ECF No. 31 at 8–9.) Then, drug manufacturers, including

Plaintiffs to this suit, began to restrict the arrangement by which contract pharmacies would obtain

and distribute drugs through the 340B Program. (Case No. 2:24-cv-00272, ECF No. 28 at 12.)

Drug manufacturers, including Plaintiffs, began to “either fully eliminate[] or significantly

restrict[] distribution of 340B drugs ordered through bill to/ship to arrangements” between covered

entities and contract pharmacies. (Id.) Plaintiffs allege this response stems from the concern that

unrestricted use of contract pharmacies “greatly exacerbated longstanding systemic 340B Program

integrity concerns, including the risk that 340B drugs are being diverted to non-patients [or] the

subject of duplicate discounts.” (Case No. 2:24-cv-00272, ECF No. 17 at 8.) According to

Defendants, such restrictions “deprived covered entities of the revenue and savings that Congress

2 The existence of the replenishment model seems supported by the supplemental authority filed by PhRMA (See Case

No 2:24-cv-002721, ECF No. 66-1 at 6.) Although that authority cites a sample contract pharmacy agreement from

Arizona, it shows how the replenishment model operates within the industry.

3 Amici include: American Hospital Association, an organization that represents “nearly 5,000 hospitals, healthcare

systems, and other healthcare organizations nationwide” through amicus advocacy; 340B Health, a “not-for-profit

organization” that “represents over 1,500 public and private nonprofit hospitals and health systems participating in the

340B program”; and the West Virginia Hospital Association, “a not-for-profit statewide organization representing

hospitals and health systems.” (Case No 2:24-cv-00272, ECF No. 31 at 7.)

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intended for the 340B Program.” (Case No. 2:24-cv-00272, ECF No. 28 at 12.) These

“restrictions,” allege Amici, “have substantially cut the savings from the 340B program, which is

devastating for the very hospitals in West Virginia that provide 86% of all hospital care that is

provided to Medicaid patients.” (Case No. 2:24-cv-00272, ECF No. 31 at 9–10.)

Responding to these new restrictions, the West Virginia legislature enacted S.B. 325—now

codified as West Virginia Code § 60A-8-6a. (See Case No. 2:24-cv-00272, ECF No. 28 at 12.)

In addition to definitions that largely cross-reference federal law, S.B. 325 has three interrelated

features. First, the law states that drug manufacturers “shall not, either directly or indirectly, deny,

restrict, or prohibit the acquisition of a 340B drug by, or delivery of a 340B drug to, a location

authorized by a 340B entity to receive such 340B drug,” unless otherwise prohibited by federal

law. W. Va. Code § 60A-8-6a(b)(1) (hereinafter referred to as the “No-Restrictions Provision”).

Second, the law restricts a drug manufacturer’s ability to acquire claims and utilization data by

stating that no manufacturer shall directly or indirectly “require a 340B entity to submit any claims

or utilization data as a condition for allowing the acquisition of a 340B drug by, or delivery of a

340B drug to, a 340B entity unless” the data is required to be shared by federal law. W. Va. Code

§ 60A-8-6a(b)(2) (hereinafter referred to as the “No-Audits Provision”). Finally, West Virginia

enacted a penalties section to enforce the previous two provisions. That portion of S.B. 325

creates the following penalties and procedures for violations of either the No-Audits or No-

Restrictions Provisions: a civil penalty of $50,000 per violation; investigatory power and civil suit

authorization in the West Virginia Attorney General; enforcement under the general unfair trade

practice laws of West Virginia; civil suit referral powers in the West Virginia Board of Pharmacy;

rulemaking authority in the West Virginia Board of Pharmacy; and the ability to “discipline, or

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suspend[], or revok[e] the license or permit of any [drug] manufacturer” who is found to be non-

compliant. W. Va. Code § 60A-8-6a(c)(1)–(3) (hereinafter referred to as the “Enforcement

Provisions”). The final portion of S.B. 325 added interpretive language in an attempt to avoid

preemption under federal law. W. Va. Code § 60A-8-6a(d)

The Plaintiffs filed suit accordingly, seeking declaratory and injunctive relief.4 (Case

No. 2:24-cv-00271, ECF No. 1); (Case No. 2:24-cv-00272, ECF No. 1); (Case No. 2:24-cv-00298,

ECF No. 1). Each of the Plaintiffs moved the Court under Federal Rules of Civil Procedure 65 to

enjoin S.B. 325 pending a final disposition of this case on the merits. (Case No. 2:24-cv-00271,

ECF No. 20); (Case No. 2:24-cv-00272, ECF No. 6); (Case No. 2:24-cv-00298, ECF No. 7). The

cases continue to proceed separately as of the date of this order. However, for purposes of the

preliminary injunction only, the parties have proceeded as if this were a single motion. Status

Conference Hr’g Tr. for July 15, 2024 (Case No. 2:24-cv-00272, ECF No. 42 at 7–9, 14.) On

September 16, 2024, the Court held a hearing where Plaintiffs and Defendants supplemented their

written arguments. As such, all motions for preliminary injunctive relief are fully briefed and ripe

for adjudication.

II. LEGAL STANDARD

“Rule 65 of the Federal Rules of Civil Procedure provides for the issuance of preliminary

injunctions as a means of preventing harm to one or more of the parties before the court can fully

adjudicate the claims in dispute.” Williams v. Rigg, 458 F. Supp. 3d 468, 473 (S.D. W. Va. 2020).

Preliminary injunctions are “never awarded as of right.” Id. (citing Real Truth About Obama, Inc.

4 AstraZeneca Pharmaceuticals LP (“AstraZeneca”) filed a similar suit for relief in a related case. (See Case No.

2:24-cv-00290, ECF No. 1.) However, as indicated in the status conference held July 15, 2024, AstraZeneca did not

move for a preliminary injunction. (Case No. 2:24-cv-00290, ECF No. 20.) Therefore, this order is inapplicable to

AstraZeneca.

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v. FEC, 575 F.3d 342 345 (4th Cir. 2009)). Rather, it is an “extraordinary remed[y] involving the

exercise of very far-reaching power,” and should only be granted “sparingly and in limited

circumstances.” MicroStrategy, Inc. v. Motorola, Inc., 245 F.3d 335, 339 (4th Cir. 2001).

To succeed on a preliminary injunction, the Court must find that the movants have satisfied

the four factors set by the Supreme Court in Winter v. Natural Resources Defense Council, Inc.,

555 U.S. 7 (2008). Those factors include: 1) that the movant “is likely to succeed on the merits”;

2) that the movant “is likely to suffer irreparable harm in the absence of preliminary relief”; 3)

“that the balance of the equities tips in [the movant’s] favor”; and 4) “that an injunction is in the

public interest.” Vitkus v. Blinken, 79 F.4th 352, 361 (4th Cir. 2023) (citing Winter, 555 U.S. at

20). “All four elements must be established by a ‘clear showing’ before the injunction will issue.”

Imagine Medispa, LLC v. Transformations, Inc., 999 F. Supp. 2d 862, 868 (S.D. W. Va. 2014)

(quoting Real Truth About Obama, 575 F.3d at 346). The plaintiff bears the burden of showing a

“sufficient factual basis” for granting the injunction “beyond the unverified allegations in the

pleadings.” Id. at 868–69 (citations omitted).

III. DISCUSSION

The Court, being satisfied that it has jurisdiction,5 will proceed to the merits of all

5 Defendants raised a challenge to jurisdiction on both Fed. R. Civ. P. 12(b)(1) and 12(b)(6). (Case No. 2:24-cv-

00271, ECF No. 34.) A Rule 12(b)(6) challenge to subject matter jurisdiction stems from the “[l]ess well-known . . .

concept of statutory standing” and asks “whether the plaintiff is a member of the class given authority by a statute to

bring suit.” CGM, LLC v. BellSouth Telecommunications, Inc., 664 F.3d 46, 52 (4th Cir. 2011). Nowhere do

Defendants’ memoranda of support indicate that PhRMA is not a member of a class who can seek remedies under the

Declaratory Judgement Act, codified at 28 U.S.C. § 2201(a), or a preliminary injunction under Fed. R. Civ. P. 65.

(See Case No. 2:24-cv-00271, ECF No. 33 at 6–17.) That PhRMA is such a member seems obvious given that other

courts have considered similar litigation invoking the Declaratory Judgment Act by PhRMA, and no court has

indicated that PhRMA is not a litigant who can seek such relief. See, e.g., Pharmaceutical Research and

Manufacturers Association of America v. Fitch, 2024 WL 3277365, *4 (S.D. Miss. July 1, 2024) (ruling on PhRMA’s

motion for preliminary injunction in case seeking to declare Mississippi law invalid through the Declaratory Judgment

Act). Defendants fail to give any reason to conclude otherwise. Thus, the Court rejects Defendants’ Rule 12(b)(6)

challenge.

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Plaintiffs’ claims. Each of Plaintiffs’ counsel presents a vast array of arguments to support the

Court’s decision to issue a preliminary injunction. The Court will not address every argument

made. Instead, it will address all relevant arguments to the meritorious rationales for enjoining

the law until final disposition. The Court will address each of the Winter factors below.

A. Factor One: Plaintiffs are Likely to Succeed on the Merits

i. The No-Audits Provision

As noted earlier in this opinion, the No-Audits Provision restricts a drug manufacturer from

obtaining claims and utilization data from a covered entity as a condition for obtaining 340B

Program drugs. Plaintiffs assert this creates an obstacle to utilizing 340B’s federally based

alternative dispute resolution system. PhRMA argues in its memorandum that “S.B. 325 cuts off”

a drug manufacturer’s ability “to gather information that will allow them to determine if reasonable

cause exists to suspect a covered entity is violating 340B’s provisions.” (Case No. 2:24-cv-

00271, ECF No. 21 at 31.) That is because, as PhRMA argues, an audit only becomes available

to a manufacturer when they “ha[ve] documentation which indicates there is reasonable cause.”

(Id.) Indeed, federal law reflects PhRMA’s assertion. See 61 Fed. Reg. 65406, 65409 (Dec. 12,

1996) (“A manufacturer shall conduct an audit only when it has documentation which indicates

Similarly, the Court rejects the challenge on a Rule 12(b)(1) argument regarding a lack of associational standing. An

organization can meet the Article III standing either by claiming “it suffered an injury in its own right or, alternatively,

it can assert ‘standing solely as the representative of its members.’” Students for Fair Admissions, Inc. v. President

and Fellows of Harvard College, 600 U.S. 181, 199 (2023) (citations omitted). This latter approach, “known as

representational or organizational standing” can be met if “(a) [the organization’s] members would otherwise have

standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and

(c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.”

Id. First, PhRMA has shown that at least two of its members, Amgen and Gilead, would have standing to sue. (Case

No. 2:24-cv-00271, ECF No. 47 at 13.) Second, among PhRMA’s purposes is to represent its members “in litigation

on behalf of its matters to ensure that members can continue to invest in research and development, including regarding

340B requirements and participation.” (Id. at 15.) Finally, the participation in a suit for declaratory relief requires

no individual participation of its members. (Id.) The Court agrees with PhRMA and rejects Defendants’ Rule

12(b)(1) challenge to subject matter jurisdiction.

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that there is reasonable cause.”). As industry practice, drug manufacturers distribute 340B

Program drugs to contract pharmacies based on the condition that claims data is shared with the

manufacturer. (See Case No. 2:24-cv-00271, ECF No. 47 at 30–31.) These requirements have

been characterized as a “minimal burden” by other courts and are widespread industry practice.

(See id. at 30 (collecting cases).) Yet the No-Audits Provision “greatly hampers” this widespread

practice and limits a manufacturer’s ability to “gather information allowing them to determine if

reasonable cause exists to suspect a covered entity is violating 340B.” (Id.) Because S.B. 325

“create[s] a significant obstacle to the program’s audit and ADR process,” Plaintiffs argue the No-

Audits Provision is conflict preempted. (Case No. 2:24-cv-00271, ECF No. 21 at 31.)

Defendants contend that such prohibitions on data collection do not stand as an obstacle to

the federal program. They argue that S.B. 325 “does not prohibit manufacturers from obtaining

information regarding the dispensing of 340B Drugs.” (Case No. 2:24-cv-00271, ECF No. 33 at

16.) Instead, Defendants contend that the statute merely “prohibits manufacturers from imposing

data sharing obligations as a condition to the receipt of a 340B Drug.” (Id. at 17.) Ostensibly,

this still leaves alternative channels to accessing data through “other lawful means.” (See id.)

(“[S.B. 325] does not prohibit manufacturers from requesting nor accessing dispensing data

through other lawful means.”). Defendants have not elaborated on what these alternative “lawful

means” are.

Preemption analysis stems from the longstanding constitutional principle that state laws

which impede federal law violate the Supremacy Clause. See McCulloch v. Maryland, 17 U.S.

316, 427 (1819). The Supremacy Clause of the United States Constitution requires that “the Laws

of the United States . . . shall be the supreme Law of the Land.” U.S. Const. art. VI, cl. 2. “Any

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state or local law conflicting with federal law is preempted and thus ‘without effect.’” Atlantic

Coast Pipeline, LLC v. Nelson Co. Board of Supervisors, 443 F. Supp. 3d 670, 678 (W.D. Va.

2020) (citing Washington Gas Light Co. v. Prince George’s County Council, 711 F.3d 412, 419

(4th Cir. 2013)). There are effectively four circumstances in which state law is preempted by

federal law. First is known as express preemption in which Congress “define[s] explicitly the

extent to which its enactments pre-empt state law,” making its intent to preempt state law “known

through explicit statutory language.” English v. General Electric Co., 496 U.S. 72, 78–79 (1990).

The second circumstance, derived by implying a Congressional intent to preempt, stems from the

federal government’s “occupying the field” of regulation in a manner “so pervasive . . . that

Congress left no room for the States to supplement it,” or when “there is a federal interest . . . so

dominant that the federal system will be assumed to preclude enforcement of state laws on the

same subject.” Arizona v. United States, 567 U.S. 387, 400 (2012). The last two forms of

preemption are distinct types of conflict preemption. The first variety of conflict preemption,

known as “direct conflict,” occurs when a state law stands as “a direct conflict between state and

federal law, such that compliance with both is impossible.” College Loan Corp. v. SLM Corp., 396

F.3d 588, 596 (4th Cir. 2005) (citations omitted). The second, known as “obstacle preemption,”

applies when a state law “stands as an obstacle to the accomplishment and execution of the full

purposes and objectives of Congress.” Crosby v. National Foreign Trade Council, 530 U.S. 363,

373 (2000). Whichever form of conflict preemption the Court analyzes, it must take caution not

to engage in a “freewheeling judicial inquiry into whether a state statute is in tension with federal

objectives” since such an exercise “would undercut the principle that it is Congress rather than the

courts that pre-empts state law.” Chamber of Commerce of U.S. v. Whiting, 563 U.S. 582, 607

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(2011) (citing Gade v. National Solid Wastes Management Assn., 505 U.S. 88, 111 (1992)).

Most germane to the No-Audits Provision is obstacle preemption. What constitutes “a

sufficient obstacle is a matter of judgment, to be informed by examining the federal statute as a

whole and identifying its purpose and intended effects.” Crosby, 530 U.S. at 373. “If the

purpose of the act cannot otherwise be accomplished—if its operation within its chosen field else

must be frustrated and its provisions be refused their natural effect—the state law must yield to the

regulation of Congress within the sphere of its delegated power.” Id. (citation omitted). Thus, the

Court must identify the federal purpose of the 340B Program to analyze whether S.B. 325 creates

an obstacle to federal law.

As other courts have put it, “[t]he purpose of [the 340B Program] is clear—it provides

discounts on drugs to certain kinds of healthcare facilities.” Novartis Pharmaceuticals Corp. v.

Espinosa, 2021 WL 5161783, *7 (D. D.C. Nov. 5, 2021). As that court held, however, “no

legislation pursues its purposes at all costs” and the 340B Program “is no exception.” See id.

(citing CTS Corp. v. Waldburger, 573 U.S. 1, 12 (2014)). Congress also fashioned the 340B

Program to “prohibit[] covered entities from reselling or transferring discounted drugs to anyone

who is not a patient of the covered entity” and, in order to “effectuate these anti-fraud provisions,

the statute requires covered entities to allow audits by . . . the manufacturer” and subjects “covered

entities to sanctions for noncompliance.” Id. (citing 42 U.S.C. § 256b(a)(5)(A)–(D)). Thus, to

fit comfortably within the federal law, a state law must not create an obstacle to twin federal

purposes—providing discounts to covered entities only and prohibiting fraud through duplicate

discounts.

The No-Audits Provision is an obstacle to both purposes. As indicated above, the 340B

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Program authorizes a drug manufacturer to utilize the administrative dispute resolution system

only “after the conduct of audits as authorized by” the statute. See 42 U.S.C. § 256b(d)(3)(A)

(emphasis added); see also 42 C.F.R. § 10.21(a)(2) (“All [dispute] claims must be specific to the

parties identified in the claims and are limited to . . . [c]laims by a manufacturer, after it has

conducted an audit of a covered entity pursuant to [the statute].”) (emphasis added). Thus,

conducting an audit serves as a condition precedent for a drug manufacturer to utilize the federal

dispute resolution system, and S.B. 325 clearly restricts such a condition from being met. By

restricting the very method by which data collection is made, S.B. 325 frustrates drug

manufacturers’ ability to take the initial steps necessary to start the very audit required to access

the alternative dispute resolution system.

Although alternative “lawful means” are asserted to be available to Plaintiffs, Defendants

have not substantively elaborated on what those means are. (See Case No. 2:24-cv-00271, ECF

No. 47 at 30–31) (“The State offers no real answer to this clear and irreconcilable conflict.

Instead, it merely asserts that ‘SB 325 prohibits manufacturers from imposing data sharing

obligations as a condition to the receipt of a 340B Drug, but it does not prohibit manufacturers

from requesting nor accessing dispensing data through other lawful means.’ . . . What other lawful

means? The State’s argument is a non sequitur.”). One of the means offered by Defendants is

that the drug manufacturers can “request” the data from the covered entities. (Case No. 2:24-cv-

00271, ECF No. 33 at 17.) What then happens if a covered entity declines such a request?

Defendants offer no alternatives. In fact, given that the No-Audits Provision forbids

manufacturers from “indirectly[] require[ing] a 340B entity to submit claims utilization data,” see

W. Va. Code § 60A-8-6a(b)(2), it seems there is not much recourse available to a manufacturer.

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Instead, covered entities—who may be engaging in the kind of fraud that the 340B Program’s

alternative dispute resolution system is meant to prevent—will essentially be the ones determining

whether or not they wish to give manufacturers the very data necessary to start such an audit. The

340B Program certainly did not establish a system where the fox guards the hen house. By

restricting a practice that the industry utilizes in order to take the first step toward accessing the

340B Program dispute resolution system, S.B. 325 creates an impermissible obstacle to executing

the federal program.

Defendants offer no other meaningful alternative “lawful means” to get this data. Indeed,

there appears to be none. The Defendants argued at the hearing on this motion that if the Court

looks to “the manufacturer’s audit process and the ADR process there is nothing about the claims

data that they say that they want or need to be able to do that that they can’t get through the federal

process.” Prelim. Inj. Hr’g Tr. (Case No. 2:24-cv-00272, ECF No. 53). Such an argument is

circular—for it is this very data that is necessary to justify the audit in the first place.

In short, the No-Audits Provision hampers the ability of drug manufacturers to formulate

the “reasonable cause” necessary to conduct an audit in the first place. Without an audit, Plaintiffs

have no ability to access the federally administered alternative dispute resolution system set up by

the 340B Program. As such, the No-Audits Provision goes well beyond simple tension with the

federal objectives. Instead, it stands as an obstacle to achieving the federal objective of

preventing fraud in the 340B Program. The Court accordingly FINDS that the Plaintiffs have

met their burden to demonstrate likely success on the merits in challenging the No-Audits

Provision.

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ii. The Enforcement Provisions

With the No-Audits Provision likely preempted, the Court turns next to the Enforcement

Provisions. Plaintiffs take issue with the state’s chosen mechanism to enforce S.B. 325. As

Novartis argued in its brief, the Enforcement Provisions create yet another “substantial obstacle”

to achieving a federal purpose. (Case No. 2:24-cv-00272, ECF No. 7 at 27.) This purpose,

Novartis says, stems from Congress placing “centralized enforcement” of the 340B Program “in

the [federal] government” and creating a “unitary administrative and enforcement scheme” in

order to harmoniously “administer both Medicaid and § 340B.” (Id. (citing Astra, 563 U.S. at

119-20).) S.B. 325 creates a series of obstacles because it “deputizes the State Attorney General’s

office and Board of Pharmacy to impose civil penalties” under West Virginia law, adds additional

fines “up to [$50,000] per violation,” and imposes “criminal liability [on] any manufacturer that

violates the state law.” (Id.)

Within all of these enforcement mechanisms, Novartis argues that these same state actors

would be called upon to determine questions of federal law. (Case No. 2:24-cv-00272, ECF No.

45 at 14.) As way of example, Novartis turns to a potential claim of diversion. (Id.) Suppose,

as Novartis says, a drug manufacturer declines to deliver a drug at the 340B price over concerns

that the drug is being diverted to non-patients in violation of federal law. (Id. at 15). Under these

circumstances, the drug manufacturer is relying on federal law as a reason for not delivering a

drug at the 340B price. (Id.) At the same time, this action would be a violation of the No-

Restrictions Provision of S.B. 325. Consequently, a state actor must then determine if the person

prevented from obtaining the drug was a “patient” as described by federal law. (Id. (citing 42

U.S.C. §§ 256b(a)(5)(B), 256b(d)(3)(A))). In other words, the state must determine whether

16

federal law required the drug to be sold at the 340B price to then determine if the drug was not

“delivered” in accordance with state law. (Id.) Novartis contends that this scenario is why a

statute like S.B. 325 is preempted because Congress, along with the Supreme Court in Astra, “have

made clear that [HHS] alone makes those calls—not innumerable different state actors in 50

different states.” (Id.)

Defendants do not attempt to refute the claim that the state may be called upon to interpret

and apply federal law in the execution of S.B. 325. (See Case No. 2:24-cv-00272, ECF No. 28 at

23.) Given the structure of the statute, how could they argue otherwise? Instead, the state

assures the Plaintiffs and the Court that “the potential for such interpretation and application within

the limited context of such state law is minimal.” (Id.) Without citing any law, state or federal,

Defendants essentially say the state would adopt a “wait and see” approach. Building on

Novartis’s example of a diversion defense, which Defendants allege is a “rare case,” the wait and

see approach would entail the state being presented with a “timing and sequencing issue of how

the state may proceed” in the face of a pending federal dispute resolution claim, resulting in an

“issue of primary and secondary jurisdiction.” Prelim. Inj. Hr’g Tr. (Case No. 2:24-cv-00272,

ECF No. 53 at 74-75). Whether or not the state would actually have to wait for the federal process

to play out first is, at best, unclear. (See id. at 75–76 (“[The Court]: So, you’re saying the state

would bring an enforcement mechanism, [and] because of a defense that was raised the state would

step back and require the parties to go through the federal mechanism? [Defense Counsel]: It may

have to. I mean, that’s why I say it’s a timing and a sequencing [issue].”) (emphasis added).)

As yet another feature of S.B. 325, Defendants contend that a drug manufacturer may raise

the argument that complying with federal law is an implied defense to S.B. 325. As Defendants

17

argued at the preliminary injunction hearing:

[I]f diversion is taking place it doesn’t impact the constitutionality of the state

procedure. It may provide a defense for [a drug manufacturer] to say in some

situation that . . . this isn’t an otherwise qualifying 340B transaction and that this

wouldn’t be something that, as a predicate, would be subject to enforcement,

but . . . the fact that the underlying 340B program is subject to abuse, fraud,

whatever you want to call it, doesn’t impact the viability of state law.

(Id. at 73–74.) Defendants cite no law within S.B. 325 or elsewhere that offers federal compliance

as an affirmative defense to violating S.B. 325.6

Before addressing the constitutionality of the Enforcement Provisions directly, the Court

pauses to address an underlying issue animating most of the parties’ arguments—is S.B. 325 about

regulating price or delivery? Supposedly in the face of Congressional silence on delivery of

340B drugs, creating non-conflicting delivery requirements would not violate the Supremacy

Clause. See, e.g., Sanofi Aventis U.S., LLC v. U.S. Department of Health and Human Services,

58 F.4th 696, 703 (3d Cir. 2023). If, however, S.B. 325 is an attempt to enforce 340B’s pricing

scheme, then the statute would be preempted according to existing Supreme Court precedent. See

Astra, 563 U.S. at 119–20. Given the outcome determinative nature of whether S.B. 325 is a price

or delivery regulation, the parties disagree as to the statute’s scope. For the reasons that follow,

the Court finds that Plaintiffs’ characterization that S.B. 325 regulates price, not delivery, is

correct.

Defendants assert that S.B. 325 is about delivery, not price. They contend that the federal

340B Program has been found to be “silent about delivery.” (Case No. 2:24-cv-00272, ECF No.

6 Potentially, Defendants could be referring to the language in the No-Restrictions Provision that reads “unless the

receipt of the 340B drug is prohibited by the United States Department of Health and Human Services.” W. Va. Code

§ 60A-8-6a(b)(1). Defendants have not made this clear. However, even if this is the hook for such an affirmative

defense, it is not enough to save S.B. 325 as will be explained later in this opinion.

18

28 at 21 (citing, e.g., Sanofi Aventis U.S., 58 F.4th at 703).) In this void, Defendants claim that

S.B. 325 only addresses delivery because the law “simply says that any participant in the 340B

Program . . . cannot refuse delivery to ‘a location authorized by’ a Covered Entity, which may

include the Covered Entity’s internal locations . . . and also its external locations,” such as contract

pharmacies. (Case No. 2:24-cv-00271, ECF No. 33 at 23 (citing W. Va. Code § 60A-8-6a(b)(1)).)

That characterization, however, is unconvincing given that Defendants essentially have

acknowledged the replenishment model as the controlling drug distribution model in West

Virginia. See supra Part I.B. Because the drug is already in the hands of the contract pharmacy

even before the patient arrives at the pharmacy, the question is not about delivery of the drug.

The question is only about what price the pharmacy and the covered entity will pay the

manufacturer for the replenished drug upon distribution of the 340B Program eligible one. Put

another way, the system is about delivery at a given price, not delivery per se.

Price is what distinguishes between an “ordinary drug” and a 340B Program drug—a fact

that seems to be reflected in the statute itself. See W. Va. Code § 60A-8-6a(a)(1) (“‘340B drug’

means a drug that . . . [h]as been subject to any offer for reduced prices by a manufacture under

[the 340B Program].”). Novartis has established this fact in its briefing. It asserts that S.B. 325

“has a substantial impact on the types of transactions that trigger the 340B discount under federal

law and the volume of discounts manufacturers must offer.” (See Case No. 2:24-cv-00272, ECF

No. 45 at 13 (citing Verified Compl. ¶¶ 35–37, 62).) That is because “Novartis’s wholesalers and

retailers already deliver Novartis’s drug products to contract pharmacies throughout West

Virginia,” irrespective of the ceiling price it may charge. (Id.) Thus, a manufacturer risks

violating S.B. 325 “not by withholding drugs from contract pharmacies, but by refusing the 340B

19

discount when delivering its drugs to those pharmacies.” (Id.) None of the non-binding

authority that Defendants cite as examples of similarly upheld statutes indicates that the

replenishment model was considered by those respective courts.

In finding that S.B. 325 operates as a means to enforce the 340B ceiling price, the Court’s

preemption analysis is guided by binding Supreme Court precedent in Astra. There, a California

county—which also operated as a 340B Program covered entity—attempted to utilize a theory of

contract law to enforce the 340B Program. Astra, 563 U.S. at 116. The county, recognizing that

it could not enforce the statute through a private right of action, claimed that it could sue on the

issue of whether a drug was delivered at the 340B price based on the argument that it was deprived

of contract benefits as a third-party beneficiary. Id. at 116–17.

The Astra Court rejected the county’s argument. Id. at 121. Concluding that a “third-

party suit to enforce an HHS-drug manufacturer agreement” was essentially “a suit to enforce the

statute itself,” the Court determined that the county impermissibly ventured into the federal

government’s enforcement of the 340B Program. Id. at 118–19. Adopting the United States

Government’s position, the Court recognized that “spreading the enforcement burden . . . is hardly

what Congress contemplated when it ‘centralized enforcement in the government.’” Id. at 119

(quoting Br. for United States as Amicus Curiae 32). An alternative ruling would not assist HHS.

Id. at 120. Rather, “suits by 340B entities would undermine the agency’s efforts to administer

both Medicaid and § 340B harmoniously and on a uniform, nationwide basis.” Id. This would

result in “a multitude of dispersed and uncoordinated lawsuits by 340B entities” and, “[w]ith HHS

unable to hold the control rein, the risk of conflicting adjudications would be substantial.” Id.

Congress chose alternative mechanisms in response to reports of “inadequate” 340B Program

20

enforcement, including a directive to “create a formal dispute resolution procedure, institute refund

and civil penalty systems, and perform audits of manufacturers.” Id. at 121.

The fact that S.B. 325 seeks to enforce the 340B price matters because the state is

essentially operating as the county in Astra did, only utilizing alternative enforcement

mechanisms. In Astra, the county was attempting to argue, by utilizing contract-based litigation,

that it was “overcharged” because the drug did not come to it at the 340B price. Astra, 563 U.S.

at 116. The Astra Court rejected this as “a suit to enforce the statute itself,” which Congress did

not authorize. Id. at 118.

Similarly, Defendants attempt to enforce the 340B Program by penalizing those who

“deny, restrict, or prohibit the acquisition of a 340B drug.” See W. Va. Code §§ 60A-8-6a(b)(1),

–(c)(1). A “340B drug,” however, is just one that is a “covered outpatient drug within the

meaning of [340B]; [h]as been subject to any offer for reduced prices by a manufacturer under

[340B]; and [i]s purchased by a covered entity within the meaning of [340B].” W. Va. Code §

60A-8-6a(a)(1)(A)–(C). With the replenishment model as the operating system, the question is

not whether the contract pharmacy will receive the 340B drug. Rather, it is what price—340B or

otherwise—the manufacturer can charge.

Defendants attempt to refute this by saying that “whether or not the 340B price is being

paid in a particular case isn’t [part of the statute].” Prelim. Inj. Hr’g Tr. (Case No. 2:24-cv-00272,

ECF No. 53 at 77.) When asked about what the state would do if there was a dispute about a drug

delivered at a price other than the 340B ceiling, Defendants contended that “[w]hether or not this

is an overcharge . . . has nothing to do with delivery.” (Id.) Yet under the replenishment model

the pharmacy will be delivered the drug regardless of its price. Only if the 340B drug—that is, if

21

the 340B price—is refused does the contract pharmacy have its “acquisition” of the drug restricted.

Thus, an allegation of failing to charge the 340B price will result in the Enforcement Provisions

coming to bear. Such a system is markedly similar to that of the one Astra rejected.

Even though Astra, unlike S.B. 325, related to preemption of private rights of action, the

result is still the same. Federal schemes preempting both private action and state enforcement are

nothing new. For example, the Employee Retirement Income Security Act of 1974 (“ERISA”)

provides a useful analog. Courts have held, consistent with the text of ERISA, that state laws

which frustrate ERISA’s “primary objective” of “provid[ing] a uniform regulatory regime over

employee benefit plans” are preempted by the federal scheme. Retail Industry Leaders

Association v. Fielder, 475 F.3d 180, 191 (4th Cir. 2007). Despite no statutory language

prohibiting state based causes of action related to ERISA, the Supreme Court has held that certain

private actions initiated by the public “would subject plans and plan sponsors to burdens not unlike

those that Congress sought to foreclose through [ERISA’s text].” Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 142 (1990). The Court further explained that, even if there was no

inferred preemption of state-based private rights of action from ERISA’s text, it would be implied

because such private rights of action cut against the “exclusive remedy provided by [ERISA] . . .

precisely the kind of special featur[e] that warrant[s] pre-emption.” Id. at 144 (internal quotations

omitted).

The Court can draw the same inference here. While the 340B Program creates implied

preemption instead of express, and its preemption has so far only been addressed by bars to private

actions operating as “suit[s] to enforce the statute itself,” Astra, 563 U.S. at 118, the result comes

out the same as in ERISA. After all, implied preemption still draws from the principle that

22

Congress intended to preempt state enforcement of the law. See Medtronic, Inc. v. Lohr, 518 U.S.

470, 486 (1996) (“[O]ur analysis of the scope of the statute’s pre-emption is guided by our oft-

repeated comment . . . that ‘[t]he purpose of Congress is the ultimate touchstone’ in every pre-

emption case.”). If private attempts to enforce the 340B Program go against “what Congress

contemplated when it ‘centralized enforcement in the government,’” Astra, 563 U.S. at 119, then

so too would public attempts to enforce it. To put it bluntly, if West Virginia attempted to enforce

340B through litigation, Astra would directly prevent such a suit as an improper method of 340B

enforcement. Why, then, does it matter if the chosen improper enforcement is litigation or

legislation? The Court finds that it matters not. Consequently, even though Astra was

specifically about private suits, its holding still controls here.

Price regulation is exclusively controlled by the federal statute, see Astra, 563 U.S. at 119–

20, and state enforcement of it would necessarily intrude on the federal scheme. The Astra Court

has already found that such attempts to enforce 340B are contrary to federal law. It is quite likely

indeed that Plaintiffs will prevail on the merits given this binding Supreme Court precedent.

Another example of how S.B. 325 runs counter to Astra’s holding is the fact that differing

state and federal adjudications may result because of the Enforcement Provisions. In rejecting

covered entities’ ability to essentially “enforce” the 340B Program, the Supreme Court in Astra

cautioned that the alternative result would lead to a substantial “risk of conflicting adjudications”

absent centralized enforcement. Astra, 563 U.S. at 120. As indicated above, Defendants do not

disagree that the state would need to make some determinations of federal law. Instead, they

contend that a claim of diversion, which would be adjudicated through the federal dispute

resolution system, might operate as a defense to the state’s enforcement. S.B. 325 does not

23

provide for this defense, however. Instead, it is likely that a drug manufacturer could both restrict

distribution at the 340B price because of diversion concerns and be subject to sanction under S.B.

325. This risk of conflicting results cuts against Congress’s vision of “centralized enforcement”

that Astra found as necessary to execute the 340B Program. As it exists, the Enforcement

Provisions present an obstacle to this centralized purpose.

As indicated above, Defendants argue that state actors would adopt a “wait and see”

approach because of issues over “primary and secondary jurisdiction.” The Court finds no

comfort in these assurances. S.B. 325 offers no such guardrails, and the Court is unaware of any

other law that would require such a result. Thus, the concern of HHS being unable to control the

reins in the face of differing adjudications, as raised in Astra, seems particularly ripe in the face of

S.B. 325. Plaintiffs are likely to demonstrate this at the merits stage.

The Court is aware out of circuit cases have addressed laws similar to the one at issue here.

Yet these cases are distinguishable on a number of grounds. In rejecting a conflict preemption

analysis for a Mississippi law, the district court in AbbVie Inc. v. Fitch cited the lack of “a clear

purpose to preempt state laws” regarding drug delivery on the part of Congress. AbbVie Inc. v.

Fitch, 2024 WL 3503965, *10 (S.D. Miss. July, 22, 2024). Yet in reaching that decision, the court

did not discuss Astra’s potential impact on a conflict preemption analysis. Further, its treatment

of that state law’s enforcement provisions was brief and rather summarily concluded that

Mississippi law “addresses delivery and Section 340B does not.” Id. at *12. It was those

reasons, and the plaintiffs’ failures to meet their evidentiary burden on that particular motion for

preliminary injunction, that resulted in the court’s rejection. Id. at *15. Given that Plaintiffs

have made a showing here that S.B. 325 would result in conflicting adjudications, and that the

24

enforcement mechanisms at issue here would conflict with Astra, the Court finds Fitch inapposite.

The Court similarly views the Eighth Circuit’s decision in Pharmaceutical Research and

Manufacturers of America v. McClain, 9 F.4th 1136 (8th Cir. 2024). In McClain, the court

reviewed the denial of a preliminary injunction against an Arkansas law with features similar to

S.B. 325. Id. at 1139–40. It rejected PhRMA’s argument there because it “present[ed] no

evidence of an obstacle.” Id. at 1145. Instead, in a rather brief rejection of an obstacle

preemption argument, the court concluded that the Arkansas law “does not require manufacturers

to provide 340B pricing discounts to contract pharmacies” and, thus, presented “no obstacle for

pharmaceutical manufacturers to comply with both [Arkansas law] and Section 340B.” Id.

Again, the Court finds this case distinguishable. At minimum, Plaintiffs have

demonstrated that the state would be called upon to determine certain federal questions in

administering S.B. 325, a fact Defendants do not dispute. The concern for differing adjudications

by differing sovereigns looms larger here than in McClain.

As one final attempt to avoid conflict preemption, Defendants point to S.B. 325’s section

(d), which states in pertinent part that “[n]othing in this section is to be construed or applied to be

in conflict with . . . [a]pplicable federal law and related regulations.” (Case No 2:24-cv-00272,

ECF No. 28 at 20 (citing W. Va. Code § 60A-8-6a(d)(1)(A)).) This, Defendants argue, means

“any discussion of SB 325’s interpretation and application is conditioned on the intent to be

construed and applied in any possible manner that avoids conflicting with federal law, including

the 340B statute.” (Id.) In response, Plaintiffs argue that savings clauses such as S.B. 325’s have

been found to “not bar the ordinary working of conflict pre-emption principles.” (Case No. 2:24-

cv-00272, ECF No. 45 at 12 (citing Geier v. American Honda Motor Co., 529 U.S. 861, 869

25

(2000)).) The Court agrees with Plaintiffs’ assertion. After all, the Supreme Court has

“repeatedly ‘decline[d] to give broad effect to saving clauses where doing so would upset the

careful regulatory scheme established by federal law.’” Geier, 529 U.S. at 870 (citations

omitted). The Enforcement Provisions are poised to upset such a scheme, not least by potentially

leading to conflicting adjudications.7

The Enforcement Provisions, much like the county in Astra, operate as a means of

“enforcing the [340B] statute.” Astra, 563 U.S. at 118. The fact that executing those provisions

also runs the risk of producing conflicting adjudications further demonstrates what should be

apparent—the Enforcement Provisions cut against the Supreme Court’s holding in Astra. That

binding precedent dictates the outcome of this case. For these reasons, the Court FINDS that the

Plaintiffs are likely to show preemption of the Enforcement Provisions as well.

iii. The Remainder of S.B. 325

As indicated above, Plaintiffs are likely to succeed on the merits that the No-Audits and

Enforcement Provisions are preempted by federal law and, thus, unconstitutional. As for the

remainder of the statute, including the No-Restrictions Provision, Plaintiffs submit a host of

arguments of various, and at times dubious, merit ranging from an unconstitutional taking to a

7 The same could be said of the internal “savings clauses” within the No-Audits and No-Restrictions Provisions

themselves. The No-Audits Provision holds that the prohibition on conditioning distribution on claims and utilization

data is controlling “unless the claims or utilization data sharing is required by the United States Department of Health

and Human Services.” W. Va. Code § 60A-8-6a(b)(2). Similarly, the No-Restrictions Provision provides that the

direct or indirect restriction on the “acquisition of a 340B drug” is prohibited “unless the receipt of the 340B drug is

prohibited by the United States Department of Health and Human Services.” W. Va. Code § 60A-8-6a(b)(1). Neither

of these savings clauses do enough to overcome the obstacle S.B. 325 erects to achieving the federal purposes of the

340B Program. S.B. 325 still upsets the carefully crafted regulatory scheme of Congress even with these savings

clauses. Further, even if the savings clause language in the No-Restrictions Provision is the supposed hook for a

“federal affirmative defense” that Defendants allude to, it still does nothing to address the fact that S.B. 325 operates

as a mechanism of federal enforcement. Consequently, these clauses within the No-Audits and No-Restriction

Provisions cannot save S.B. 325 from preemption.

26

violation of copyright law. However, given the Court’s finding on the preemption of the other

two provisions of the statute, a far simpler rationale for enjoining the rest of S.B. 325 emerges.

Namely, the remaining provisions are non-severable from the rest of the statute.8

“After finding an application or portion of a statute unconstitutional, [the Court] must next

ask: Would the legislature have preferred what is left of its statute to no statute at all?” Ayotte v.

Planned Parenthood of Northern New England, 546 U.S. 320, 330 (2006). “The question of the

severability of a state statute’s provisions is governed by state law.” Sons of Confederate Veterans,

Inc. v. Commissioner of the Virginia Department of Motor Vehicles, 288 F.3d 610, 627 (4th Cir.

2002).

While S.B. 325 contains no severability clause itself, Chapter 60A of the West Virginia

code, where S.B. 325 is codified, has a general severability clause. See W. Va. Code § 60A-6-

605 (“If any provision of this chapter or the application thereof to any person or circumstance is

held invalid, such invalidity shall not affect other provisions or applications of the act, and to this

end the provisions of this act are hereby declared to be severable.”). The Supreme Court of Appeals

of West Virginia, when conducting severability analysis, has stated the following:

A statute may contain constitutional and unconstitutional provisions which may be

perfectly distinct and separable so that some may stand and the others will fall; and

if, when the unconstitutional portion of the statute is rejected, the remaining portion

reflects the legislative will, is complete in itself, is capable of being executed

independently of the rejected portion, and in all other respects is valid, such

remaining portion will be upheld and sustained.

State v. Tennant, 229 W. Va. 630, 642 (2012) (citation omitted). Further, the Tennant Court also

noted that “[t]he most critical aspect of severability analysis involves the degree of dependency of

statutes.” Id. Thus, if “the valid and the invalid provisions of a statute are so connected and

8 While the parties do not specifically address severability, the Court feels constrained to do so.

27

interdependent in subject matter, meaning, or purpose as to preclude the belief, presumption or

conclusion that the Legislature would have passed the one without the other, the whole statute will

be declared invalid.” Id. (citations omitted).

Interdependence is clear here. Without the Enforcement Provisions, the No-Restrictions

Provision has essentially no operation because it depends on the former to be executed. See W.

Va. Code § 60A-8-6a(c) (explaining that “[t]he commission of any act prohibited by subsection

(b)” constitutes a violation under the Enforcement Provisions). The Fourth Circuit has held that

if a law “‘can[] be enforced without’ the challenged provision,” then the non-challenged provisions

can avoid the preliminary injunction. North Carolina State Conference of NAACP v. McCrory,

831 F.3d 204, 239 (4th Cir. 2016). The opposite is true for S.B. 325. The No-Restrictions

Provision cannot be enforced without the Enforcement Provisions. The remaining sections of

S.B. 325 also only serve as definitions and interpretive provisions. Therefore, Plaintiffs are

entitled to the relief they request. Given the interdependent nature of the remaining provisions of

S.B. 325, the whole of the law should be preliminarily enjoined.

iv. Likelihood of Success on the Merits and a Facial Challenge

Defendants finally argue that Plaintiffs are not likely to succeed on the merits because they

will be incapable of meeting the “very high bar” of a non-First Amendment facial challenge.

(Case No. 2:24-cv-00271, ECF No. 33 at 17.) This burden holds that “a plaintiff cannot succeed

on a facial challenge unless he establishes that no set of circumstances exists under which the law

could be valid, or he shows that the law lacks a plainly legitimate sweep.” (Id. (citing Moody v.

NetChoice, LLC, 144 S. Ct. 2383, 2397 (2024)).) PhRMA responds by asserting: 1) its

“preemption challenge is not purely facial”; and 2) even if the Court does hold that this is a facial

28

challenge, a no set of circumstances test “would make no sense” for obstacle preemption purposes.

(Case No. 2:24-cv-00271, ECF No. 47 at 16–17.)

Ultimately, Plaintiffs have raised a facial challenge to S.B. 325. The Plaintiffs seek a final

disposition of this case by granting their prayer for relief and the issuance of “an order and

judgment declaring that SB 325 is unconstitutional and violates federal law.” (Case No. 2:24-cv-

00271, ECF No. 1 at 47.) This, however, does not undermine the rationale for issuing a

preliminary injunction. Other courts have aptly pointed out that applying the facial challenges

standard to conflict preempted statutes makes little sense. See Lozano v. City of Hazleton, 724

F.3d 297, 313 (“That approach would reject a conflict preemption claim in a facial challenge

whenever a defendant can conjure up just one hypothetical factual scenario in which

implementation of the state law would not directly interfere with federal law.”). Here, too, it

makes little sense to say the Plaintiffs—who are drug manufacturers—have failed to demonstrate

that there are no circumstances where a law targeting drug manufacturers can be legitimately

applied. Swap in any of PhRMA’s, or Novartis’s, or AbbVie’s peers and the result is the same—

the law is still an obstacle to the federal scheme. If S.B. 325 is an obstacle preempted by federal

law, it will be an obstacle preempted no matter who the plaintiff is.

B. Factor Two: Plaintiffs Will Suffer Irreparable Harm in the Absence of Preliminary Relief

Having met their burden under the first factor of Winter, Plaintiffs next must sufficiently

demonstrate that they will suffer irreparable harm absent a preliminary injunction. To that end,

each Plaintiff takes a slightly different tack. Novartis argues that it faces a “Hobson’s choice: risk

draconian penalties, or comply with an unconstitutional law.” (Case No. 2:24-cv-00272, ECF

No. 7 at 32.) Either outcome, it argues, leads to irreparable harm. (Id.) It asserts that enduring

29

“an unconstitutional state enforcement action” satisfies the second factor because “loss of

constitutional rights constitutes irreparable harm for preliminary-injunction purposes.” (Id.

collecting out of circuit cases).) Further, Novartis argues that failing to comply “comes with

severe penalties, including a “$50,000 per violation [penalty],” among the various other sanctions

faced by drug manufacturers under S.B. 325. (Id.) As supported by its declarations, “Novartis

relies on the revenues generated from the sales of its drugs to recoup the high costs of developing

those drugs,” and the Enforcement Provisions’ sanctions “would drain Novartis’s ability to commit

to the same level of investment in the research and development programs” it maintains. (Id. at

33 (citing Declaration of Odalys Caprisecca, (ECF No. 6-1 at ¶¶ 12–14)).) Should Novartis opt

to comply, it claims it will cause “unrecoverable financial losses.” (Id.) That is because [o]nce

the 340B discounts are made, there is no readily apparent mechanism for Novartis to recover them

from the contract pharmacies or covered entities—under either federal or state law.” (Id.)

Novartis concludes, “[t]he ADR process provides no obvious path for [it] to recoup a 340B

discount provided on account of a state law mandate later found to be invalid. And the state law

provides for no such mechanism either.” (Id.)

PhRMA echoes these points as well. It argues that, among other things, their members

would “suffer irreparable harm in the form of unrecoverable compliance costs and unrecoverable

lost resources . . . or face West Virginia’s imposition of draconian civil penalties.” (Case No.

2:24-cv-00272, ECF No. 21 at 35.) On the one hand, PhRMA suggests that its members “will be

required to continue to devote funds and resources to ensuring compliance with S.B. 325 and will

likely, in some cases, be required to retain outside assistance by contracting with a company to

help ensure compliance with the law.” (Id. at 36.) These “costs are unrecoverable given West

30

Virginia’s sovereign immunity.” Like Novartis, PhRMA also notes its members will face severe

fines if it fails to comply, (Id.) AbbVie also takes note of these fines, but describes them as

“unconstitutionally excessive.” (Case No. 2:24-cv-00298, ECF No. 8 at 23.)

Defendants do little to contest the existence of irreparable harm. What little resistance

they do put up can be summarized as follows: “Arguing that the equities favor an injunction,

Plaintiff focuses on its pecuniary interest, harkening back to its alleged irreparable harm. . . .

This gives short shrift to the concerns of West Virginia residents and entities that will be deprived

of positive repercussions of SB 325.” (Case No. 2:24-cv-00272, ECF No. 28 at 26 (internal

citation omitted).) Ironically, Defendants themselves seem to have given “short shrift” to

discussing the second Winter factor.

Nevertheless, the Plaintiffs bear the burden of proving each factor by a clear showing. See

Imagine Medispa, 999 F. Supp. 2d at 868. It does not appear that a violation of the Supremacy

Clause, standing alone, is sufficient to per se qualify as irreparable harm. See Association of

American Publishers, Inc. v. Frosh, 586 F. Supp. 3d 379, 394 (D. Md. 2022) (recognizing that,

while Fourth Circuit precedent has found per se irreparable harm for “loss of constitutional

freedoms guaranteed by the Bill of Rights,” it has “not [held] that a violation of the Supremacy

Clause gives rise to irreparable harm per se.”). However, being subjected to fines and being

forced to spend resources on compliance with a law ultimately struck down has been sufficient to

meet irreparable harm. See Air Evac EMS v. Dodrill, 548 F. Supp. 3d 580, 594–95 (S.D. W. Va.

2021) (Johnston, J.) (recognizing irreparable harm where a plaintiff “may be subject to fines;

forced to spend time, money, and resources to comply with the new requirements and regulations

under [a law] that may later be struck down, or may ultimately be forced to close its doors

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entirely”).

There is a clear showing that enforcement would lead to such harms. The text of the

Enforcement Provisions alone “subject a violator to $50,000 per each violation,” and violations

accrue for “[e]ach package of 340B drugs determined to be subject to a prohibited act.” W. Va.

Code §§ 60A-8-6a(c)–(1)(A), –(2). Plaintiffs and their members may very well be required to

contend with and defend against potential investigations pursued by the Attorney General and the

Board of Pharmacy. W. Va. Code §§ 60A-8-6a(c)–(1)(A), –(3)(A). Further, Defendants will be

subjected to compliance costs associated with whatever rules the Board of Pharmacy decides to

create under this newfound authority. All of these rather severe consequences flow from the

effect of a law that this Court finds likely to be preempted and thus unconstitutional.

These harms are more than speculative. In fact, as mentioned in the status conference

preceding this order, Defendants acknowledge that there are already a growing number of

complaints pending before the Board of Pharmacy following the enactment of S.B. 325. Such

complaints indicate that enforcement of S.B. 325 is imminent,9 supplying a justification for

issuing an injunction. See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 382 (1992) (“In

suits such as this one, which the plaintiff intends as a ‘first strike’ to prevent a State from initiating

a suit of its own, the prospect of state suit must be imminent, for it is the prospect of that suit which

supplies the necessary irreparable injury.”). Given the likelihood of harm absent a preliminary

injunction, Plaintiffs have sufficiently met their burden under the second Winter factor.

9 Just before the Court entered this order, Defendants advised that Board of Pharmacy began processing complaints

under S.B. 325. (See 2:24-cv-00272, ECF No. 62.)

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C. Factors Three and Four: the Balance of Equities Tips in Plaintiffs’ Favor; a Preliminary

Injunction is in the Public Interest

Finally, the last two Winter factors tip in Plaintiffs’ favor. Winter factors three and four

merge when the government is a defendant. See Pierce v. North Carolina State Board of

Elections, 97 F.4th 194, 225 (4th Cir. 2024) (“Plaintiffs must show ‘that the balance of equities

tips in [their] favor’ [Winter factor three] and ‘that an injunction is in the public interest.’ [Winter

factor four] . . . These ‘factors merge when the Government is the opposing party.’”) (citations

omitted). AbbVie argues that the “’balance of the equities favors preliminary relief’ when the

‘issuance of a preliminary injunction . . . prevents the state from enforcing restrictions’ that are

likely to be held invalid.” (Case No. 2:24-cv-00298, ECF No. 7 at 34 (citing Leaders of a

Beautiful Struggle v. Baltimore Police Department, 2 F.4th 330, 346 (4th Cir. 2021)).) Rather,

granting an injunction serves “‘the primary purpose of’ temporary injunctive relief: to ‘preserve

the object of the controversy in its then existing condition—to preserve the status quo.’” (Id.

(citing Aamer v. Obama, 742 F.3d 1023, 1043 (D.C. Cir. 2014)).) On the other hand, the public

interest is served by “seeing that federal law is enforced and not countenancing state efforts to

reset the metes and bounds of participation in federal healthcare programs.” (Id. at 35. citations

omitted).)

Defendants counter that the “public also has a substantial interest in seeing the statutes

lawfully adopted by their democratically-elected Legislature enforced.” (Case No. 2:24-cv-

00272, ECF No. 28 at 26.) They argue that the public will be served by denying the injunction

because allowing the statute to be enforced would lead to “increased distribution of and improved

access to 340B drugs” and would benefit “West Virginia’s widespread rural population that

qualifies for 340B patient status.” (Case No. 2:24-cv-00272, ECF No. 28 at 26.)

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This, of course, misses the point of the 340B Program. After all, 340B drug pricing is for

the benefit of the covered entities. They enjoy the benefits of the 340B Program, not patients

themselves, as acknowledged by all parties. Further, no matter how the state pursues even

laudable policy goals, it still must not violate the Supremacy Clause. If the chosen scheme runs

afoul of the Constitution, it is invalid. Enforcing an otherwise preempted statute at minimum

harms the Plaintiffs, especially when such burdensome penalties and compliance costs are at stake.

This injunction does not grant drug manufacturers a blank check. Should PhRMA’s

members, Novartis, or AbbVie engage in conduct that fails to adhere to their obligations under the

340B Program, such as overcharging covered entities, HHS retains its power to enforce under its

authority granted by Congress. See Astra, 563 U.S. at 120. A preliminary injunction does

nothing to upset the federal program. However, the enforcement of S.B. 325 likely would.

Complying with S.B. 325 means that drugs may be improperly diverted at the 340B price without

any ability for the manufacturers to recoup the loss by utilizing the federal dispute resolution

system. S.B. 325 also offers no recovery mechanism.

Thus, the interest in preserving the status quo is justified here. The Winter factors all favor

Plaintiffs. Until the Court can make a final determination on the merits, a preliminary injunction

keeps the parties in their respective conditions prior to S.B. 325’s enactment.

D. CONCLUSION

For these reasons, Defendants’ motion to dismiss in the PhRMA case, (Case No. 2:24-cv-

00271 ECF No. 34), is DENIED. Plaintiffs’ motions for a preliminary injunction, (Case No.

2:24-cv-00271, ECF No. 20), (Case No. 2:24-cv-00272, ECF No. 6), (Case No. 2:24-cv-00298,

ECF No. 7.), are GRANTED. While these cases are pending, Defendants are enjoined from

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enforcing West Virginia Code § 60A-8-6a against the Plaintiffs.

In light of the Court’s findings regarding the absence of any meaningful harm to

Defendants related to this injunction, as well as the likelihood that Plaintiffs will succeed on the

merits, the Court ORDERS that the security required by Federal Rules of Civil Procedure 65(c) be

set at ZERO. See, e.g., Doe v. Pittsylvania, 842 F. Supp. 2d 927, 937 (W.D. Va. 2012).

Because Defendants’ motion is denied, Defendants are ORDERED to file an answer to

PhRMA’s complaint within fourteen days of this order pursuant to Federal Rules of Civil

Procedure 12(a)(4)(A). (Case No. 2:24-cv-00271, ECF No. 1.)

IT IS SO ORDERED.

The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any

unrepresented party.

ENTER: December 17, 2024

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Ye Ht

Le JOHNSTON t—~™

UNITED STATES DISTRICT JUDGE

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