Opioid Industry Fights Efforts to Make It Pay for Crisis

Opioid makers and distributors are fighting a novel New York state law that aims to collect hundreds of millions of dollars from the industry to help defray costs of the opioid crisis, with some companies re-engineering their supply chain to avoid the new tax.

Source: WSJ - Sara Randazzo | Published on November 19, 2018

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Companies and trade groups have argued in three legal challenges filed in recent months that the law, which seeks $600 million over six years, is unconstitutional. They point to a lawsuit New York’s attorney general has already filed against major opioid industry players to recoup money for the state, and say the tax is an improper end-run around resolution of that case.

New York’s health department sent bills last week to 75 companies and their subsidiaries detailing how much they owe under the new Opioid Stewardship Act. The state said the charges are based on the volume and potency of drugs each company sold or distributed in New York. The first charge retroactively covers 2017.

Companies hit with the charge say they recognize the seriousness of the crisis, which has led to widespread addiction and public-health costs. But they say taxing companies for legal drug distribution isn’t the solution.

The state’s health department disclosed the names of affected companies but not the amounts each owe, citing trade secrets. The list includes well-known names like CVS Health, Endo International PLC, Purdue Pharma LP and Teva Pharmaceutical Industries Ltd. alongside dozens of small companies based around the country.

Purdue was assessed $7 million, according to a person familiar with the matter. Drug distributor AmerisourceBergen Corp. estimates it will pay $22 million for its share from 2017 and through September of this year, according to a recent securities filing.

Distributor McKesson Corp. said on an October earnings call it expects opioid-related costs, including the New York surcharge, to exceed $100 million in its current fiscal year, with the majority of that tied to litigation. A Cardinal Health Inc. executive said on a recent earnings call the company took a $29 million charge for the New York opioid tax for prior fiscal years.

Some companies are arguing the amount they owe makes it prohibitively expensive to operate in New York.

Drugmaker Mallinckrodt PLC said in a lawsuit filed Oct. 24 in New York federal court that its costs under the law are higher per pill than the revenue it made on some of its most popular generic drugs. It sold one form of Oxycodone in 2017 for around 4.7 cents per tablet, the company said in the suit, but now must pay 8.2 cents per tablet to New York. The company, which reported $420 million in operating income in 2017, said New York billed it $1.3 million.

“Basic economic reality dictates that if a generic manufacturer is guaranteed to lose money on its sale or distribution of an opioid medication in New York, it will abandon the New York opioid market completely,” Mallinckrodt said in the suit, which it filed under the name of its generic-drug subsidiary, SpecGx LLC.

The law threatens to penalize folks with a legitimate medical need for opioids, said Jeff Francer, general counsel for the Association for Accessible Medicines, a trade organization representing generic-drug manufacturers that filed one of the three lawsuits to block the act.

More than a dozen other states have considered some form of opioid tax in the 2018 legislative session, but only New York’s has become a law, according to the National Conference of State Legislatures. Outside of legislation, some 1,500 cities, counties and states have sued opioid makers and distributors seeking money to combat the opioid crisis.

A spokesman for New York Gov. Andrew Cuomo stood by the law, which was passed in March, and said it “helps hold big pharma responsible for the opioid crisis they helped fuel.”

Some distributors are already working on ways to avoid the surcharge, prompting disputes with manufacturers over who in the opioid supply chain should be responsible for the extra cost.

AmerisourceBergen said recently it doesn’t expect to continue paying the tax because it changed its operating model around how it receives prescription opioids in New York.

AmerisourceBergen told Mallinckrodt on Oct. 10 that it will no longer accept opioid shipments at its national distribution center in Columbus, Ohio, that are intended for New York, according to Mallinckrodt’s lawsuit. If others follow, Mallinckrodt said, manufacturers will bear the entire cost of the surcharge. Under the law, distributors that send drugs into New York from a central hub outside the state get hit by the surcharge, not the pill maker.

The Healthcare Distribution Alliance, which represents drug distributors, argued in a July lawsuit that the law unfairly penalizes companies that keep operations within New York. If some companies move operations to other states, they said, those remaining will absorb their portion.

The trade organization also takes issue with a clause in the law that prohibits passing on the costs of the surcharge to New York customers, at risk of $1 million fines, saying it invites arbitrary enforcement.

New York officials said in court filings that the legal challenges should be thrown out because of a federal law prohibiting challenges to taxes.

Here are the companies being asked to pay the state a collective $100 million, based on 2017 opioid sales:

  • Distributors: A.F. Hauser Inc., AmerisourceBergen Corp., Bell Medical Services, Benco Dental Supply Co., Bloodworth Wholesale Drugs, Burlington Drug Co., Caligor Coghlan, Capital Wholesale Drug Co., Cardinal Health Inc., Catalent Inc., Eversana, Exel Inc., Genetco Inc., Golden State Medical Supply Inc., Henry Schein Inc., Independent Pharmaceutical, Independent Pharmacy Cooperative, Independent Pharmacy Distributor, Lifeline Pharmaceuticals LLC, LifeScience Logistics, McGuff Co, McKesson Corp., Patterson Companies Inc., PD-Rx Pharmaceuticals Inc., Prescription Supply Inc., QK Healthcare Inc., Quest Pharmaceuticals Inc., R&S Northeast LLC, Redmond & Greer Pharmacy Supply, Rochester Drug Cooperative, Saddle River Marketing Concepts, TopRX LLC, UPS Inc.

  • Drugmakers: AbbVie Inc., Akorn Inc., Alvogen, Amneal Pharmaceuticals LLC, Apotex Corp., Auburn Pharmaceutical Inc., Aurobindo Pharma, Endo International PLC, Epic Pharma, Glenmark Pharmaceuticals Inc., Hikma Pharmaceuticals PLC, Lannett Co. Inc., Lupin Pharmaceuticals Inc., Mallinckrodt PLC, Mylan N.V., Osmotica Pharmaceutical, Perrigo Co., Pfizer Inc., Pharmaceutical Associates Inc., Precision Dose Inc., Purdue Pharmaceuticals, Sun Pharmaceutical Industries Inc., Tagi Pharma Inc., Teva Pharmaceutical Industries Ltd., Vertice Pharma

  • Other: Aidarex Pharmaceuticals LLC, AndersonBrecon Inc., Associated Pharmacies Inc., Bound Tree Medical LLC, Central Admixture Pharmacy, CVS Health, Darby Dental Supply, Dealmed Medical Supplies, Diamond Pharmacy Services, Fagron Inc., ICU Medical Inc., Letco Medical LLC, NYC HHC Correctional Health Services, PCCA, PuraGraft, Southern Anesthesia & Surgical Inc., Value Drug Co.

Source: New York State Department of Health
Note: Parent companies are listed when the subsidiary was billed.