(Bloomberg) -- California is becoming the new battleground for drug pricing, with pharmaceutical companies pouring millions of dollars into an effort to head off a state ballot initiative that would rein in spending on medicine.

The California Drug Price Relief Act would require government health programs to only contract with drugmakers at prices that are the same as or lower than those paid by the U.S. Department of Veterans Affairs, which typically gets deep discounts on medications from drug manufacturers.

Drug prices have "gone from crazy to obscene," said Michael Weinstein, president of the AIDS Healthcare Foundation, in a September interview. The Los Angeles-based non-profit organization is a proponent of the initiative. "Every new category of drugs is like 30 percent higher than the previous one."

Drugmakers have argued that drug prices haven’t risen as much as they appear because insurers and government programs pay much less than the list price after negotiations.

They also note that drug prices haven’t risen as a portion of overall U.S. health-care spending in recent years.

The initiative would be presented to voters in November 2016 if it gets the required signatures.

Even though that’s more than a year away and the measure isn’t yet confirmed to be on the ballot, industry organization Pharmaceutical Research and Manufacturers of America is already mobilizing, setting up a fund of more than $10 million to fight the bill.

Contributing to the fund are eight drugmakers, including Johnson & Johnson, which gave $5.86 million, Bristol-Myers Squibb Co., which gave $2.88 million, along with Pfizer Inc., Eisai Co., Purdue Pharma LP, the Medicines Co., Sunovion Pharmaceuticals Inc. and Daiichi Sankyo Co., according to a report filed last week with the California Secretary of State

Representatives for J&J, Bristol-Myers and Purdue declined to comment. Representatives for Pfizer, Eisai, the Medicines Co., and Sunovion didn’t respond to requests for comment sent after business hours.

Daiichi Sankyo in an e-mail said it has contributed $10,000 to the California Initiative Fund. The company "has serious concerns about this measure and its potential impacts," it said.

Clinton’s tweet

Pharmaceutical companies may be particularly concerned about the California act since the national conversation on drug pricing has heated up in recent weeks.

Democratic presidential candidate Hillary Clinton criticized Turing Pharmaceuticals AG on Sept. 21 for a price hike of more than 5,000 percent on an old anti-parasite drug it acquired. Her pledge to reform the industry sent the Nasdaq Biotechnology Index tumbling. Turing has said it will lower the price of the drug, though it hasn’t said how much.

Further political pressure came from House Democrats, who are pushing to subpoena Valeant Pharmaceuticals International Inc. for documents relating to drug-price increases.

Valeant has said its business model doesn’t rely on large price increases and that increased pressure from politicians to curb government reimbursements won’t hurt the company.

“While this ballot measure may look simple, the changes being proposed will have adverse consequences for Californians," Kathy Fairbanks, a spokeswoman for the California campaign being formed by the drug companies to oppose the ballot measure, said in an e-mail. “If it goes forward, we will be preparing a campaign to educate voters in California about its negative consequences.”

Fairbanks said the campaign is still studying the proposed initiative to formulate its response.

The AIDS Healthcare Foundation is watching the national- level politics closely, said Weinstein. "We want to make this a national presidential campaign issue," he said. "If these pass you are going to see a flurry of legislative action across the country," referring to the California initiative and a similar ballot in Ohio.

The group expects to have 525,000 to 550,000 signatures by mid-October, well in excess of the 366,880 needed to qualify for the ballot, a spokesman said.

Spending

It’s not uncommon for companies to spend tens of millions of dollars to oppose ballot initiatives in California.

Health insurers contributed $56 million to defeat a 2014 initiative to make rate changes on insurance plans subject to state approval.

The ballot initiative follows a proposal earlier this year by California Assembly member David Chiu to require manufacturers to explain the production costs behind any drugs that cost $10,000 or more per year. The bill stalled in the California legislature, lacking the needed votes to be passed, and will be revisited next year.

While proponents are pushing similar proposals in other parts of the U.S., it’s easier for citizens to get initiatives and referendums on the ballot in California than in some other states, in part because no action by the state legislature is required once a proponent obtains enough certified signatures.

Furthermore, not all states allow citizens to place issues on the ballot.

The AIDS Healthcare Foundation is backing another Drug Price Relief Act in Ohio.

From 1904 to 2012, California voters weighed in on 352 of them, more than any other state besides Oregon, according to the Initiative and Referendum Institute at the University of Southern California.

Instant Insights /

J&J, Bristol-Myers battle California drug discount proposal

More From HR Executive

Related Stories

Recommended For You