In the quick pound of a gavel, the entire U.S. pharmaceutical and biologics industries were thrown into doubt after Judge Reed O’Connor of the United States District Court for the Northern District of Texas found the individual mandate of the Affordable Care Act (ACA) – and therefore the entire act – unconstitutional.

Judge O’Connor’s ruling late last week poses two potentially significant consequences for the pharmaceutical industry, both short- and long-term. First, the ruling could undo the entire U.S. biosimilars industry, because without the ACA, there is no statutory framework for biosimilar drug approval. Second, Judge O’Connor’s opinion could potentially leave millions of patients without prescription drug insurance coverage, hurting both the patients themselves as well as the pharmaceutical industry’s bottom line. The good news is that while the ACA has been declared unconstitutional, Judge O’Connor did not issue an injunction, so the act remains in force – at least for now.

The Uncertain Fate of the U.S. Biosimilars Industry

The entire statutory framework governing biosimilars within the biologics industry passed as part of the ACA. This portion of the ACA, referred to as the Biologics Price Competition and Innovation Act of 2009 (BPCIA), created the legal pathways for filing biosimilar applications, initiating patent infringement suits prior to a biosimilar launch, staging litigations, and allowing FDA regulation of the U.S. biosimilars industry.

At this time, U.S. biosimilars companies should continue business as usual. No injunction has issued, and it is unclear whether the plaintiff states wish to undo the entire ACA or just the individual mandate at this time. However, every company should be closely watching this litigation, since how it plays out has the potential to significantly affect business operations. If the plaintiff States request an injunction, companies may need to adjust long-term plans in anticipation of potentially changing regulatory approval pathways.

There are several possible outcomes for the BPCIA. First and most industry-upsetting, Judge O’Connor’s ruling could be upheld in its entirety. In that instance, the BPCIA would no longer be in force and the related FDA regulatory framework would be invalid. In this scenario, Congress could pass individual components of the ACA, like the BPCIA, again.

However, there is no guarantee that the statute would pass exactly as previously drafted. There would no doubt be pressure to revise the biosimilars framework from both branded and biosimilar companies, especially in light of each group’s experiences with the BPCIA in recent years. A revised statutory scheme would require close monitoring. Changes could be minor – for example, resolving inconsistencies or providing greater clarity to the current scheme – or major, for example, adjusting exclusivity periods or the structure of the “patent dance.”

However, the deeply divided Congress may not be able to re-pass the BPCIA at all. Lobbying efforts had stymied its passage before the ACA, and there is a chance it would flop in the current legislative landscape as well. This could effectively end the U.S. biosimilars market. Investment dollars would likely still flow into the European and global markets, leaving U.S. patients below the worldwide standards of care.

Finally, it is also possible that the BPCIA could be unaffected if an appellate court upholds the individual mandate or finds the individual mandate provision severable from the remaining provisions of the ACA. This is a more likely scenario since, in addition to the BPCIA, there are several other provisions that do not relate to the individual mandate or taxation.

The Potentially Devastating Impact of Lost Prescription Drug Coverage

Judge O’Connor’s ruling also may significantly impact patient access to insurance coverage, which could keep millions of patients from the prescription drugs they need and send pharmaceutical companies scrambling. If Judge O’Connor’s ruling is upheld, the loss of the ACA would also have serious long-term impacts on the pharmaceutical industry. Even under the ACA, a large number of patients do not have their prescriptions filled or do not pursue their refills because of potentially high drug costs.

The loss of the ACA could only exacerbate this problem. From a business standpoint, this means the potential loss of millions of prescription drug sales, wreaking havoc on sales projections and hurting bottom lines.

If the ACA is found unconstitutional, it is unlikely Congress would pass similar legislation a second time, and a replacement for the ACA is hard to imagine. It could range from the country’s previous employer-provided health care system to a fully single-payer system, but would almost certainly be stuck in partisan gridlock for quite some time before the future system is finalized. Perhaps the district court or appellate court will limit the scope of the ruling, sparing BPCIA and prescription coverage, among other issues.