This Week in 340B: May 13 – 19, 2025
Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation.
Issues at Stake: Rebate Model, Other, Contract Pharmacy
In consolidated cases against the government related to rebate models, the court issued multiple rulings denying and granting, in whole or in part, the cross motions for summary judgment filed by all parties.
In one case against the government related to rebate models, the court granted the intervenors’ motion to intervene.
In one case against the government related to rebate models, the court found that plaintiff has standing to challenge the government.
In a case by a covered entity against the government, the covered entity filed an opposition to proposed intervenors’ motion for leave to submit an amicus brief.
In a case by a drug manufacturer against the government, the drug manufacturer filed an opposition to the government’s partial motion to dismiss.
In two cases challenging a Utah state law governing contract pharmacy arrangements, the defendants filed a memorandum in opposition to the plaintiff’s motion for preliminary injunction. In the same case, the defendants filed a motion to dismiss.
In an appealed case challenging a Louisiana law governing contract pharmacy arrangements, the plaintiff filed a motion in opposition to intervenor-defendant’s motion for leave to file a sur-reply to appellant’s reply brief.
In a case against the government challenging its certification of a group of entities as 340B-eligible, plaintiffs filed an opposition to the government’s partial motion to dismiss. (Other)
In a case challenging a South Dakota law governing contract pharmacy arrangements, a group of amici filed an amicus brief in support of defendants’ motion to dismiss. (contract pharmacy)
In a case brought by a 340B covered entity alleging breach of contract by an insurance company, the insurance company filed a notice of removal to remove the case from state court to federal court.
In a case challenging Missouri law governing contract pharmacy arrangements, plaintiff-appellant filed an opening brief.
Nadine Tejadilla also contributed to this article.
Nebraska to Restrict SNAP Soda and Energy Drink Purchases
On May 19, 2025, U.S. Secretary of Agriculture Brooke Rollins signed the first-ever waiver allowing Nebraska to restrict the use of Supplemental Nutrition Assistance Program (SNAP) funds to purchase certain “junk” foods and beverages, such as candy and soda. Beginning in January 2026, SNAP participants in Nebraska will not be able to use the benefits to purchase soda and energy drinks.
Previously, SNAP recipients could purchase any groceries except for alcohol, tobacco, hot foods, and personal care products. The waiver is part of the Make America Healthy Again agenda and “seeks to reverse alarming disease trends across the country.”
In April, Nebraska Governor Jim Pillen submitted a letter to Secretary Rollins notifying her of the state’s intent to pursue a SNAP waiver. According to Pillen, “[t]here’s absolutely zero reason for taxpayers to be subsidizing purchases of soda and energy drinks. SNAP is about helping families in need get healthy food into their diets, but there is nothing nutritious about the junk we are removing with today’s waiver.”
Several other states, including Arkansas, Colorado, Kansas, Indiana, Iowa, and West Virginia, have submitted requests to prohibit SNAP funds from covering certain foods or to allow the use of funds to purchase certain hot foods, such as rotisserie chicken. Many other states have active legislation seeking to restrict SNAP funding for certain products. While USDA has historically rejected waivers to restrict SNAP spending, Rollins supports “tak[ing] junk out of SNAP.”
Keller and Heckman will continue to monitor developments related to SNAP.
FDA Warning Letter Takes Issue with Designation of Substance as Dietary Ingredient
In a Warning Letter posted yesterday (but issued in April), FDA warned Gluten Free Remedies LLC that one of their dietary supplement products was adulterated because it declared sulbutiamine as a dietary ingredient.
Section 201(ff) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 USC 321 (ff)) defines a dietary supplement in part as a product (other than tobacco) intended to supplement the diet that bears of contains one or more of the following dietary ingredients: A) a vitamin; B) a mineral; C) an herb or other botanical; D) an amino acid; E) a dietary substance for use by man to supplement the diet by increasing the total dietary intake; or F) a concentrate, metabolite, constituent, extract, or combination of any ingredient described in A – E.
Sulbutiamine is a synthetic derivative of thiamine (vitamin B1) and so does not fit in the A – D dietary ingredient categories. In its New Dietary Ingredient Notifications and Related Issues draft guidance, FDA addresses the circumstances under which it would consider a synthetically produced substance to be a dietary ingredient, including in the context of substances in dietary ingredient category E (see pp. 37-38). FDA takes the position that a substance fitting the category E dietary ingredient criteria must be part of the human diet, and in the context of synthetic substances, requires the synthetic copy to have been lawfully marketed in the conventional food supply. Vanillin and cinnamic acid are offered as examples of such synthetic dietary ingredients.
FDA has previously objected to the use of other substances that it has concluded do not meet the dietary ingredient definition. For example, it has taken the position that methylsynephrine, a synthetic stimulant, does not meet the dietary ingredient definition. See e.g., Methylsynephrine in Dietary Supplements | FDA.
The terms in dietary ingredient category E are not defined in the FD&C Act (FDA’s interpretation in the draft guidance draws from dictionary definitions) and may be more susceptible to challenge since the Supreme Court overturned Chevron deference to agency decisions in Loper Bright Enterprises v. Raimondo.
Congress and the Feds — the Impact of Nonperformance
Ponder the following existential question: Who does their job less effectively? Members of Congress, or employees of federal agencies? Let’s examine the U.S. Environmental Protection Agency (EPA) employees versus those responsible for legislating environmental laws.
Congress has not been able to reauthorize environmental statutes for years, with some (most) needing significant attention. EPA relies on 1990 Clean Air Act amendments to sort out air pollution issues and address climate change when in 1990 the debate focused especially on acid rain and emissions from autos with the latest in 1980s technology. Water pollution? Let’s continue to rely on foundational approaches based on the Rivers and Harbors Act of 1899!
Even trying to avoid snarky arrogance and intellectual ridicule from a former federal employee, the basic point remains — many of the “problems” often cited by critics of Agency behavior can be traced back to the fact that demands to fix current problems are being made of a program that does not quite fit the text of the authorizing statute. To address action demanded by state and federal legislative members the bureaucracy has to rely on fitting the law they implement to often unforeseen problems that they now confront.
Many observers fear the fallout of the demise of the Chevron doctrine — concern that, without deference to Agency interpretations, important problems may remain unaddressed (or worse, for some, resolution may fall to federal judges). But consistent with the court opinion, interpretations of legislative text is the domain of judges or, heaven forfend, the responsibility of Congress to define or refine clearly the extent and intent of the legislation.
The current lamentable (to some) result to fill effectively the legislative effort can be called “rubber-suiting” — stretching the colorable authority already granted to address a new problem not originally anticipated by the legislative authors. An example in the environmental space is the EPA authority to regulate biotechnology products: the Toxic Substances Control Act (TSCA) and the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) can reach (stretch) to cover most of the waterfront about regulatory issues identified needing regulation.
Over the past decades, Congress and different administrations have made intermittent attempts to craft a new, broad, and modern statute to coordinate and regulate government review and approval of biotechnology products. The current government allocation of responsibilities across agencies, reliant on authority legislated mostly long before biotechnology products were developed, is governed by policies first crafted during the Reagan and H.W. Bush Administrations.
Jurisdiction remains fragmented, relying on statutes drafted before modern methods of biotech engineering were even developed, and holes in the rubber-suit remain. Example of a hole? An earnest high school student can purchase an “at-home Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) device” and experiment with doctoring DNA in their own home, out of sight or knowledge of regulatory officials. For $129.00 on Amazon.com, you can buy a “DIY Bacterial Genome Engineering CRISPR Kit.” We hope the result is not a literal version of “Audrey II” from Little Shop of Horrors.
In addition to the jurisdictional difficulties and holes, especially acute in the last decade or three, is the bitter partisanship besetting congressional deliberation. There are continued calls for “regular order,” but apparently little appetite for the same. “Regular order” would see legislation introduced, deliberated by the assigned subcommittee(s) and committee(s), moving to floor consideration in each chamber, and differences between House and Senate resolved by a conference committee. Such a schematic is about as currently relevant as having new members watch Jimmy Stewart’s Mr. Smith Goes to Washington as part of orientation. (That is the last film reference used today.)
An important book that has become required reading in introductory political science coursework is in its fifth edition: Politics, Position, and Power: The Dynamics of Federal Organization, by Harold Seidman. Its main message? To reorganize the federal government, you need to reorganize the Congress. A famous example of the problem, cited by many: A cheese pizza is subject to regulations developed by one agency (the U.S. Food and Drug Administration (FDA)), while a pepperoni pizza is subject to regulations from an entirely different agency (the U.S. Department of Agriculture (USDA)). Explanations of this curiosity include jurisdictional rivalries among congressional committees and federal agencies. Calls for a single food-safety agency have seen legislation introduced for years and have been the subject of many General Accountability Office (GAO) reports.
More Americans have lived in urban areas than rural areas since the 1910 Census, and according to USDA, agriculture represents roughly 2.6 million Americans who were directly employed on farms, equaling about 1.2 percent of total U.S. employment. At the same time, one of the relatively few committees in Congress is specifically focused on Agriculture. Indeed, the country’s food production is important, and if you count all jobs related to food, the percentage jumps to be over 10 percent. Congress might benefit from a reorganization itself, since the urban population has outnumbered rural residents for over 100 years, but rural states would likely take offense at any attempt to de-emphasize the critical importance of the agricultural sector in our modern economy.
Our April 2, 2025, blog post discussed how the call to reorganize EPA has been a long-standing idea to “reform” the agency to better achieve its mission. Likewise, the point here is to suggest that Congress might benefit from a version of “doctor, heal thyself” should any serious attempt be made to make government work better, be more efficient, and give more meaning to the phrase “your tax dollars at work.”
FDA Advances Post-Market Chemical Review Program
On May 15, 2025, the U.S. Food and Drug Administration (FDA) announced the launch of “a stronger, more systematic review process for food chemicals already on the market — especially those that concern consumers most.” Over the coming months, FDA will roll out the following key actions:
A modernized, evidence-based prioritization scheme for reviewing existing chemicals. According to FDA, it will soon release a draft for public comment;
A final, systematic post-market review process shaped by stakeholder input. More information on FDA’s 2024 Discussion Paper Development of an Enhanced Systematic Process for the FDA’s Post-Market Assessment of Chemicals in Food is available in our August 22, 2024, blog item; and
An updated list of chemicals under review, including butylated hydroxytoluene (BHT); butylated hydroxyanisole (BHA); and azodicarbonamide (ADA). FDA states that it will also take steps to expedite its review of chemicals currently under review like phthalates, propylparaben, and titanium dioxide. FDA notes that it will continue to share information about the status of its work on its public website as part of its push for greater transparency.
FDA notes that until now, it has conducted post-market reviews “on a case-by-case basis, often in response to citizen petitions or new scientific evidence.” FDA states that the new framework “will be proactive, science-based, and built for long-term impact.”
The Trump Administration Announces Price Targets as It Takes a Second Swing at “Most Favored Nation” Drug Pricing Model
At a Glance
MFN Pricing Returns: The EO revives effort to link U.S. drug prices to those in peer countries, calling for voluntary industry action.
Aggressive Action on the Table: If progress on voluntary price cuts stalls, the Administration may pursue rulemaking, FTC enforcement and FDA actions.
DTC Emphasis: It supports direct-to-consumer drug purchasing.
Broad Scope: Announced price targets cover brand products without generic/biosimilar competition in “all markets.”
On May 12, 2025, President Donald J. Trump signed an Executive Order (EO) titled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients,” and the Department of Health and Human Services (HHS) quickly followed up with an announcement of related pricing targets on May 20, 2025. According to the announcement, “HHS expects each manufacturer to commit to aligning U.S. pricing for all brand products across all markets that do not currently have generic or biosimilar competition” with the most-favored-nation (MFN) target price. The announcement describes that target price as the lowest price in any Organisation for Economic Co-operation and Development (OECD) country with a Gross Domestic Product (GDP) per capita of at least 60% of the U.S. GDP per capita.
The EO follows the April 15, 2025, release of EO No. 14273 titled “Lowering Drug Prices by Once Again Putting Americans First” (April 15 EO), discussed in our previous Client Alert, and further emphasizes the Administration’s focus on reducing U.S. drug costs. Notably, the EO does not call for legislative reforms or immediate rulemaking to require MFN pricing. Instead, it seeks voluntary pricing changes and specifies additional steps the Administration will take if “significant progress” toward MFN pricing does not occur. In a statement issued shortly after the EO, however, Senator Bernie Sanders indicated that he will soon introduce legislation to ensure people in the U.S. pay no more for prescription drugs than those in other major countries.
This alert provides a brief overview of the EO and identifies key takeaways and issues to watch going forward.
Key Provisions of the Executive Order
The EO directs three initial actions aimed at aligning U.S. drug prices with those paid by similar countries:
Direct-to-Consumer (DTC) Drug Purchasing: The EO calls for the HHS Secretary to facilitate DTC purchasing programs that allow consumers to purchase drugs directly from manufacturers offering an MFN price.
Foreign Practices: The EO directs the Secretary of Commerce and the United States Trade Representative to ensure that foreign countries do not engage in practices that may be unreasonable or discriminatory or impair U.S. national security and that result in U.S. patients shouldering a disproportionate amount of global drug research and development costs.
MFN Price Targets: The EO instructs the HHS Secretary to communicate MFN price targets to pharmaceutical manufacturers. As noted above, HHS announced information regarding price targets on May 20, 2025.
If “significant progress” toward achieving MFN pricing is not delivered, the EO directs the following additional actions:
Rulemaking: The HHS Secretary must “propose a rulemaking plan” to require MFN pricing, but the EO does not address the statutory authority for or scope of this rulemaking.
Personal Importation: The HHS Secretary shall “consider” certifying that personal importation under section 804(j) of the Federal Food, Drug, and Cosmetic Act (FDCA) will pose no additional risk to public health and safety and will significantly reduce the cost of prescription drugs to Americans. (This certification must occur before the U.S Food and Drug Administration (FDA) can use the authority in section 804(j) to waive prescription drug import restrictions for individuals.) If such certification is given, the EO further directs the FDA Commissioner to issue guidance describing circumstances under which waivers will be consistently granted.
Federal Trade Commission(FTC) Enforcement: The Attorney General and the Chairman of the FTC must, to the extent consistent with applicable law, take enforcement action against anticompetitive practices by manufacturers identified in a report to be issued under the April 15 EO.
Drug Exportation: The Secretary of Commerce and other relevant agency heads shall review and consider all necessary action regarding the export of pharmaceutical drugs that may be fueling global price discrimination.
Potential Drug Approval Modifications/Revocations: The FDA Commissioner must “review and potentially modify or revoke approvals” for drugs that may “be unsafe, ineffective, or improperly marketed.”
Key Takeaways and Issues to Watch
The Administration’s focus for MFN pricing appears to be broad: Neither the EO, nor its accompanying Fact Sheet, describes the scope of drugs subject to MFN pricing, but the HHS announcement refers to “brand products across all markets,” indicating that innovator drugs without generic or biosimilar competition—regardless of their cost to federal healthcare programs or indications—are within scope.
What happens if voluntary price reductions fail to materialize? Many actions described in the EO come into play only if there is a failure to make “significant progress” toward MFN pricing. In most cases, the EO offers little detail on the authority and timeframe for those actions (such as the kinds of measures the Administration might pursue to address drug exports contributing to global price discrimination). Without a set deadline for “significant progress” to occur, the EO appears to provide manufacturers and other stakeholders a window to propose changes to current pricing. Whether any voluntary changes will convince the Administration to hold off on rulemaking to implement a mandatory MFN model, enforcement actions, or other activities described in the EO remains to be seen.
A new MFN rule will be a likely target of legal challenges. During President Trump’s first term, Centers for Medicare & Medicaid Services (CMS) issued an interim final rule that would have tied Medicare Part B payments for 50 single source drugs to the lowest GDP-adjusted price paid in economically similar countries. Multiple organizations swiftly challenged the rule, and three federal courts temporarily blocked its implementation, citing the likely insufficiency of notice and comment rulemaking procedures under the Administrative Procedure Act (APA). The rule was later withdrawn by the Biden Administration. This time around, the Trump Administration may seek to reduce the likelihood of an APA procedural challenge by issuing a proposed rule for public comment before implementing any mandatory MFN pricing. However, it is reasonable to expect that any final rule issued on this topic will prompt litigation.
Pharmacy benefit managers (PBMs) may face increased pressure. In his remarks at the EO signing, President Trump was clear that one of the aims is to “cut out the middlemen”—a likely reference to the pharmacy benefit managers (PBMs) that, among other things, negotiate with drug manufacturers and pharmacies to set prices. The EO’s directive to facilitate DTC purchasing programs reflects this goal but is short on specifics that will be key to the impact of such programs. For example, it’s unclear if manufacturers will be required to participate and if patients will ultimately pay more out of pocket for drugs offered through the DTC programs than they would by obtaining drugs through their insurance. Nonetheless, the EO, along with April 15 EO calling for regulations to improve PBM fee transparency may increase pressure on PBMs to change their pricing practices.
The impact of any personal importation waivers may be limited. During the first Trump Administration, FDA expressed significant concerns about implementing the personal importation waiver authority under section 804(j) of the FDCA. Even if thinking at HHS and FDA has changed, and the HHS Secretary makes the required certification to implement the authority under section 804(j), the waivers described in the EO must be issued to individuals on a case-by-case basis to permit them to import unapproved drugs from other countries. Such waivers, which would not facilitate large-scale commercial drug imports, seem unlikely to result in significantly increased access to lower cost drugs.
Should manufacturers expect FDA scrutiny if they don’t reduce prices? The EO’s reference to potential modification or revocation of existing drug approvals is puzzling. While the FDA has authority to withdraw the approval of a drug or revoke a biological product license, those actions must be based on certain findings, and none of the bases for withdrawal or revocation refers to drug pricing. The EO makes no express link between drug manufacturer pricing actions and FDA review of existing drug approvals, but it could be read to imply that those manufacturers who do not voluntarily reduce prices will see additional FDA examination of their approved products.
While significant questions remain about the authority for and impact of several directives in this new EO, the Trump Administration is clearly focused on drug pricing reforms. The EO also appears to be another piece of the Trump Administration’s approach to tariffs on pharmaceuticals and biologics. (See our previous client alerts on Section 232 investigations of pharmaceutical imports and President Trump’s May 5, 2025 Executive Order to Promote Domestic Production of Biopharmaceuticals). Pharmaceutical and biologics industry stakeholders should closely monitor additional developments in this area.
Considerations for Life Sciences Employers When Planning Reductions in Force
Life sciences employers have been impacted by various market forces in the last several years, and the recent economic turbulence is only adding to the challenges they face.
Many employers in this space have implemented, or are considering, reductions in force (RIFs) to meet these headwinds. Indeed, one industry source cataloged 187 layoffs among biotech companies in 2024—a 57 percent jump compared to 119 layoffs in 2022. That trend appeared to accelerate in the first quarter of 2025, as that same industry source tallied sixty-seven layoffs. A leading consulting firm noted that 30 percent of life sciences senior executives surveyed would focus on cost-cutting initiatives in 2025, including layoffs.
Life sciences employers planning RIFs may want to develop a planning matrix that addresses key employment law compliance issues, as well as considerations that are specific to the industry. This article provides an overview.
Quick Hits
Life sciences employers planning RIFs may want to develop a planning matrix that addresses key employment law compliance issues, including federal and state WARN Act requirements and industry-specific considerations.
Employers may want to ensure they have created defensible and analytical selection criteria for layoffs, ensuring decisions are based on legitimate, nondiscriminatory business justifications and supported by credible evidence.
Conducting a statistical review of preliminary layoff decisions can help employers identify and address any potential disparate impact on certain demographic groups.
1. Consideration of WARN Act and Mini-WARN Requirements
Any reduction in force should take into account federal and state laws that regulate layoffs. The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers to provide employees sixty days’ advance notice prior to a “plant closing” or “mass layoff.” A plant closing or mass layoff can be triggered with as few as fifty employment losses at a “single site of employment.”
Moreover, many states have similar plant-closing laws as well, often referred to as “mini-WARN” laws. Some of these laws are not mandatory but rather encourage voluntary compliance, while others contain requirements that, for the most part, follow the federal WARN Act requirements. However, several states’ mini-WARN laws have lower thresholds for employment losses and thus are triggered more easily than the federal WARN Act. These include Maryland (fifteen employees) and Illinois, Iowa, and Wisconsin (twenty-five employees). The Maine law can require severance in certain situations, while California’s law varies from the WARN Act in several ways. New Jersey law requires ninety days’ notice, and, in some cases, the payment of severance. Thus, before conducting the RIF planning process, employers may want to take into account the impact federal WARN Act and state mini-WARN laws may have on the reduction in force well in advance.
2. Developing Defensible Selection Criteria
To defend its layoff decisions, an employer will want to be able to identify legitimate and nondiscriminatory business justifications, backed by credible evidence, as the basis for its RIF employee selections and terminations.
Position or Group Elimination. In some cases, the reason for a decision is easily established, and there is little basis for second-guessing any “selections,” as all of the employees in a specific position or group are terminated. For example, a biotech company might eliminate all research positions working on a particular oncology molecule if early clinical stage results are poor. This type of elimination is the easiest to defend, as all employees are usually affected and there is no basis for an employee to argue he or she was treated unfairly or differently than employees in other demographic categories. Thus, defending selection decisions for these reasons primarily requires explaining and documenting the business rationale for position or group eliminations.
Selections Among Employees in Like Jobs. Employers often will select some but not all employees in a specific position or job classification (for example, a reduction in force affecting 10 percent of employees holding the role “Research Scientist I”). Because the employer is picking and choosing between employees, keeping some and discharging others, the decision can be subject to challenge by employees who believe an impermissible factor may have driven the decision (i.e., age, race, gender, etc.). As such, employers may want to consider utilizing business-based criteria to guide the decision-making. The factors considered can include subjective and objective factors. Factors an employer might utilize include performance, skill sets, tenure, location, or other criteria important to the department involved. (Note that the criteria need not be the same for each group or department.) For example, human resources likely values different skills and proficiencies as compared to product development. Many employers will weigh each factor in a matrix that produces an overall “score” for each employee and then “stack rank” each employee from highest- to lowest-ranked, and ultimately choose the lowest-ranked employees for layoff. By creating such a (relatively) scientific process, the employer will have created valuable evidence of a fair and nondiscriminatory method for its decision-making. While the initial decisions might wisely be considered attorney-client privileged, subject to review by employment counsel, in the event of a charge of discrimination or demand, the employer often benefits from maintaining final documents in a discoverable and nonprivileged format that can be shown (if needed) to employees and their counsel. These documents often form the basis for the company’s defense—proof of the legitimate and nondiscriminatory reasons for the selection.
3. Statistical Review
Employers may want to consider conducting a statistical review of preliminary layoff decisions to determine whether the layoff decisions have a “disparate impact” on employees in a certain demographic characteristic (i.e., gender/age/race, etc.). Without delving into all the details, a disparate-impact analysis generally looks at the demographic characteristics of selected employees compared to those not selected and determines whether that outcome is reasonably likely by chance. However, if the likelihood of the actual selections becomes so small as to be statistically unlikely (for example, an employer with a 50/50 split in male and female accountants selects 90 percent of women for discharge), there could be a problem with the selection criteria or the application of those criteria. Note that a statistical variance does not establish gender discrimination in this example, as there may be many other nondiscriminatory reasons that contributed to the variance. Nevertheless, a significant statistical variance often warrants further review. Thus, many employers may find it to be a useful exercise to review the statistical analysis, explore any variances that are statistically significant, identify nondiscriminatory reasons for the statistical variance, and “pressure test” the proposed decisions to help ensure that the application of the selection criteria was fair and appropriate.
Even though the Trump administration has sought to eliminate the use of disparate-impact liability under civil rights laws, this statistical-analysis step remains prudent for several reasons: (i) while President Trump’s executive order may prevent the U.S. Equal Employment Opportunity Commission (EEOC) from prosecuting disparate-impact cases against employers, former employees can still likely sue for disparate impact, based on their own private right of action; (ii) the executive order does not directly eliminate disparate-impact rules arising under state law; and (iii) perhaps most important, a statistical analysis can help identify red-flag pockets of the organization that may be more vulnerable to disparate-treatment liability.
4. OWBPA Disclosures
In most instances, employers conducting layoffs will offer severance to impacted employees in return for their release of any claims they may have related to their discharge. Care, however, must be taken under the federal Age Discrimination in Employment Act (ADEA), as employers must adhere to special rules under the Older Workers Benefit Protection Act (OWBPA) to obtain enforceable releases of claims. In the context of a “group” (i.e., two or more employees) termination of employment, the OWBPA requires employers to provide employees age forty and over with (among other things): forty-five days to consider the offer of severance, seven days to revoke any acceptance of the offer, advising such employees to consult with counsel before executing the agreement, and certain written disclosures to inform the eligible individuals of the following:
any class, unit, or group of individuals covered by such program, any eligibility factors for such program, and any time limits applicable to such program; and
the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.
To comply with these obligations, employers may want to include in the disclosure the scope of the “decisional unit” (i.e., the group of employees which the employer considered in making layoff selection and retention decisions, which itself can be difficult to determine) and the eligibility or selection criteria.
Courts require “strict compliance” with these requirements. However, as the OWBPA regulations are neither entirely clear nor consistent, compliance with the standards can be difficult. These federal OWBPA rules, however, do not apply to employees under the age of 40.
5. Multistate Releases
One size does not fit all in the case of release language. Not only do employers need to be aware of OWBPA obligations, but a number of states in the last several years have issued heightened obligations necessary for legally enforceable releases. Because of the varied nature of these obligations, employers may consider developing releases that comply with all state laws in which employees are affected.
6. Protection of IP
Of particular interest to any life sciences employer is the protection of the employer’s intellectual property and relationships after a reduction in force. Typically, affected employees, like those retained, will possess confidential information, such as product or drug development plans, or perhaps impacted employees developed important relationships with suppliers or customers. As such, employers may want to consider how best to protect their trade secrets and relationships, which they often do through existing agreements signed at the outset of employment (such as nondisclosure, nonsolicit, and noncompete agreements). Depending on the circumstances and the state involved, those agreements may or may not be fully enforceable. For example, in Massachusetts, certain noncompete agreements entered into on or after October 1, 2018, are not enforceable if the employee was dismissed via a layoff. Because of these intricacies, employers concerned about the impact of a layoff on these key employer assets might consider what steps they can take to further their protection as it relates to a reduction in force, including potentially building in new or enhanced protections in severance agreements.
7. Implementation
Lastly, life sciences employers undertaking the difficult step of a layoff may want to consider carefully how the RIF is implemented. Not only do layoffs impact the affected employees in a significant way, they also affect those employees retained and the business itself in the marketplace, especially in the hypercompetitive life sciences space. As such, employers often will develop a communication plan for affected employees, those who are retained, and external audiences. Further, employers may want to be mindful of wage-payment obligations, as many states have specific requirements regarding how and when wages must be paid upon termination of employment.
Conclusion
The above are some of the primary workstreams employers consider as they prepare for and structure reductions in force. Of course, there are others that may need to be addressed, including severance plan development, consideration of unionized employee dismissals (if any), tracking plans for the receipt of signed separation agreements, outplacement plans, public relations concerns, and continuation of health benefits under COBRA, to name a few.
Guarding Against the Unknown: M&A Due Diligence of AI Companies in Data-Sensitive Sectors
M&A in the AI sector is redefining deal risk, especially when sensitive data is involved. As AI companies power breakthroughs in biotech, healthcare, defense, and critical infrastructure, the stakes for companies acquiring businesses handling proprietary data, biotech research, medical records, trade secrets, critical technology or government intelligence have never been higher. In an era where a single data breach or compliance failure can derail innovation and shatter market trust, due diligence has evolved from a legal checkpoint to a mission-critical strategy for safeguarding value in a rapidly disrupting landscape.
Government Contracts and Defense
AI companies servicing defense sector clients with government contracts must rigorously evaluate their obligations under regulations such as the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR). It’s vital to examine transactions that may affect critical infrastructure or defense for clearance by the Committee on Foreign Investment in the United States (CFIUS). A prospective buyer’s due diligence process should include thorough analysis of customer contracts and internal compliance, especially in cross-border sales involving national security concerns, to ensure compliance with vital regulatory requirements.
Biotech Research
In biotech research, AI plays a crucial role in analyzing large datasets like genomic and clinical data, with predictive models aiding drug discovery. The data used in this research must adhere to the U.S. Food and Drug Administration (FDA) guidelines on data integrity, encompassing ethical standards, study validity, and accuracy. Detailed due diligence by a prospective buyer of adherence to these guidelines is imperative to adhere to regulations, ensuring companies advance innovation responsibly in the biotech sector.
Data Protection and Privacy
A top priority when assessing AI companies dealing with sensitive information is compliance with data protection regulations for both customer data and user data. Due diligence should thoroughly examine how companies structure policies to ensure adherence to regulations such as the Health Insurance Portability and Accountability Act (HIPAA) for medical data, the General Data Protection Regulation (GDPR) for EU-based data, and the California Privacy Rights Act (CPRA) for California user data. These evaluations safeguard sensitive information while bolstering trust in partnerships and operations.
Technological and Security Assessments
Robust cybersecurity measures are essential for AI companies to safeguard sensitive data against breaches. Due diligence should entail examining security protocols, vulnerability management strategies, and incident response plans, and evaluating technologies like encryption and secure coding practices. Ensuring an organization is equipped against cyber threats protects its most valuable assets. AI companies also need to be mindful of maintaining confidentiality standards of their proprietary IP when collaborating with government bodies or during regulatory reviews relating to their industry sector. Buyers will review those arrangements to evaluate whether a potential target has allowed for unintended disclosures of its proprietary algorithms.
Conclusion
The M&A landscape for AI companies managing sensitive data demands comprehensive due diligence across regulatory compliance, intellectual property protection, foreign investments, and cybersecurity. A thorough evaluation of these facets enables informed decision-making, securing sensitive information and aligning strategies in the rapidly evolving AI sector. An AI company undergoing a sale or seeking opportunities should act deliberately to strengthen its position in the above areas.
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Tiernan Still also contributed to this article.
Maryland Delays Start of Paid Family and Medical Leave Program
Hold your horses—Maryland just added a few more furlongs to its race toward a paid family leave.
On May 6, 2025, Governor Wes Moore signed House Bill 102 (“the Amendment”), which again pushes back the start date for Maryland’s Family and Medical Leave Insurance Program (FAMLI). This latest delay came as no surprise, given Maryland Department of Labor’s (MDOL) proposal earlier this year to extend the FAMLI implementation dates, because of the “high degree of instability and uncertainty for Maryland employers and workers” created by recent federal actions.
Dates to Begin Contributions and Use Leave Benefits
As we previously discussed, FAMLI will be funded through contributions from employees and employers with 15 or more employees. Although the Amendment does not alter FAMLI’s funding model, the required payroll deductions, previously scheduled to start on July 1, 2025, will now begin on January 1, 2027. The Maryland Secretary of Labor also now has until March 1, 2026, to set the contribution rates for 2027, and then until November 1st to designate the contribution rate for each subsequent calendar.
Notably, the Amendment does not establish an exact date on which employees can use paid family leave benefits. Instead, the Amendment only directs the Secretary of Labor to announce when the benefits will be available, provided the announcement is not later than January 3, 2028. Previously, benefits were supposed to begin January 1, 2026.
Finally, the minimum and maximum weekly benefit amounts remain unchanged for 2027 and 2028 at $50 and $1,000 respectively. Starting in 2029, however, FAMLI’s maximum weekly benefit amount will be tied to the Consumer Price Index to account for inflation.
Addition of the “Anchor Date”
The Amendment also added the term “Anchor Date,” which is defined as the earlier of the date on which a covered individual completes their FAMLI benefit application or the date the leave began. The state will use the Anchor Date as the new reference point for calculating (i) when an employee is eligible for paid family leave benefits; (ii) the covered employee’s average weekly wage, which is used to calculate the amount in benefits they receive; and (iii) their eligibility for increases in weekly benefits under the Program.
To qualify as a “covered employee” under the amended law, an individual must have worked at least 680 hours over the four completed calendar quarters immediately prior to the Anchor Date. Previously, employees needed only to work at least 680 hours in the four most recently completed calendar quarters before the date the leave began. Additionally, a covered employee’s average weekly wage will be calculated based on the total wages the employee received in the highest of the four completed calendar quarters that immediately precede the Anchor Date.
Finally, any increases to FAMLI’s weekly benefit amount will only apply to paid family leave applications with an Anchor Date that occurs on or after the date the increase becomes effective, except in certain cases where paid family leave benefits are paid intermittently.
Looking Ahead
The Maryland Department of Labor is in the process of developing regulations to help implement FAMLI and has already updated its website to reflect the new dates discussed here. We will continue to keep you updated as circumstances evolve.
What Means Means for Mushrooms and Marijuana: How Might Trump’s Surgeon General Nominee Shift the Conversation for Cannabis and Psychedelics?
Earlier this month, President Trump tapped “physician-turned wellness influencer” Casey Means as his nominee for surgeon general. Means has close ties to Health and Human Services Secretary Robert F. Kennedy Jr., and Trump has touted her “impeccable” Make America Health Again (MAHA) credentials. We’ve written previously on what impact Trump’s second presidency could have on American cannabis and psychedelic policy, but Means’ public statements on cannabis and psychedelics got us pondering on how she may shift the conversation.
We’ll start with the good news for those who are proponents of expanding access to psychedelics. Means has been vocal about her support of psychedelic therapy. In her 2024 book Good Energy: The Surprising Connection Between Metabolism and Limitless Health,Means touted her positive experience with psychedelics. She described her experience and encouraged those that felt so called “to explore intentional, guided psilocybin therapy.” She explained that “[s]trong scientific evidence suggests that this psychedelic therapy can be one of the most meaningful experiences of life for some people” as it had been for her. She states:
If the word psychedelics makes you cringe, I used to be in your position. I spent my childhood and young adult life being extremely judgmental about the use of any type of drug. But I became interested in plant medicine and psychedelics after learning more about their extensive traditional use, analyzing the groundbreaking research… Our brains are profoundly suffering in modern society right now, and I believe that anything that can safely increase neuroplasticity and ground us in more gratitude, awe, connection, and a sense of cosmic safety should be taken very seriously.
She went on to describe her experience on psylocibin as “bask[ing] in the moon’s bright rays… experience[ing] the embodiment of being one with the moon, every star, every atom in the grains of sand I was sitting on, and my mother in an inextricable and unbreakable chain of universal connectedness for which the human concept of ‘death’ was no match.”
She’s also referenced and advocated for the “plant medicine” psilocybin on her blog. In one post she explained that one of the modalities she has gone “deepest in” included “plant medicine (psilocybin).”
But Means’ position on cannabis isn’t as rosy. Means has expressed opposition to marijuana, saying in her book that “people who use cannabis as well as tobacco products should stop these completely” because they will “hurt your mitochondria and vastly diminish your ability to make Good Energy.” She goes on in her book to say:
There has always been suffering in the world, but now we can see exponentially more of it than ever, all at once, on screens we hold in our beds and at the dinner table. In response, modern humans have looked for salvation and coping anywhere we can get a hit of dopamine-fueled ‘pleasure’ and distraction: things like processed sugar, alcohol, soda, refined carbs, vapes, cigarettes, weed, porn, dating apps, email, texts, casual sex, online gambling, video games, Instagram, TikTok, Snapchat, and the relentless novelty of experiences.
She remains critical on her blog as well. It’s not hard to read Means’ statements and assume that anyone using cannabis is doomed to end up like the character in Afroman’s hit 2000’s bop “Because I Got High.”
What this means (pun intended) for proponents of expanded access to cannabis and psychedelics is difficult to say for sure.
As an initial matter, Means still has to be confirmed, and she’s already faced “pushback on multiple fronts.” Means has drawn criticism for not having a current medical license, including from former surgeon generals, as well as questions about whether she should even be eligible to be surgeon general. She’s also received criticism from some in the MAHA camp for not taking a strong enough stance on other issues. In other words, in a political climate where nothing is certain, there is far from any guarantee that Means will be confirmed as the new surgeon general.
If she is confirmed, we think she’ll take the approach we’ve seen many proponents of psychedelics take to advance them as medicine. The political climate is ripe to do so. Bipartisan lawmakers this month asked Trump’s head of the U.S. Department of Veterans Affairs to meet with them “to discuss ways to provide access to psychedelic medicine for military veterans.” At a cabinet meeting, VA Secretary Doug Collins advised Trump that his agency was “opening up the possibility of psychedelic treatment for veterans.” The leader of the MAHA movement, RFK Jr., even discussed the “wonderful experience” he had with LSD when he was younger.
We remain skeptical that even with the confirmation of Means we will see significant psychedelic reform, but we do think it makes it more likely that we would see more science-based reform efforts, focused on scientific and medicinal benefits. We’re less sure about what it may mean for any meaningful cannabis reform. As Marijuana Moment noted on the issue recently, Trump endorsed rescheduling, industry banking access for cannabis businesses, and a Florida legalization ballot initiative, but these issues seem to have taken a backseat for key officials and lawmakers.
So, I guess that brings us back where it all begins. Does Means mean business when it comes to psychedelic or cannabis reform? And even if she does, is there the political interest and will amongst the relevant agencies and Congress to see those changes through? Only time will tell, but we’ll stay on top of it so you don’t have to.
New Mexico Legalizes Medical Use of Psilocybin
On April 7, 2025, New Mexico became the third state to legalize psilocybin (colloquially known as “magic mushrooms” or “shrooms”) for medical purposes. New Mexico is the first state to legalize psilocybin via legislation and not a ballot initiative, like its predecessors Colorado and Oregon.
Quick Hits
On April 7, 2025, New Mexico became the third state to legalize access to psilocybin, following Colorado and Oregon.
Employers are not required to accommodate employees under the influence of psilocybin at work.
Under the new law—the “Medical Psilocybin Act”—the following qualifying conditions are listed as eligible for psilocybin treatment: “(1) major treatment-resistant depression; (2) post-traumatic stress disorder; (3) substance use disorders; (4) end-of-life care.” The law also allows the New Mexico Department of Health to promulgate regulations that would add qualifying conditions to that list.
New Mexico’s secretary of health has been tasked with establishing a “medical psilocybin advisory board,” to consist of nine members who have knowledge of the medical use of psilocybin. At least one member must be a member of an Indian nation, one must be a behavioral health advocate, and another must be “a representative of the health care authority.” The law also establishes a research fund to allow New Mexico state universities to research additional medical benefits of psilocybin. Finally, the law establishes an “equity fund” which allows for qualified patients who meet certain income requirements to receive psilocybin treatment.
A key takeaway for employers is that the law does not create a private cause of action for violations of its provisions. Thus, as of now, an employee cannot sue an employer for failing to accommodate his or her medical use of psilocybin. However, underlying Americans with Disabilities Act (ADA) claims could arise from failing to accommodate an employee’s use of psilocybin.
It is likely to take a few years for the psilocybin program to be fully operational. (The law requires the program to be implemented by December 31, 2027.) However, in the meantime, employers in New Mexico may want to review their drug testing and accommodations policies with regard to medical psilocybin for qualified patients. As a reminder, employers are not required to accommodate employees who are under the influence of psilocybin while at work.
Was Rescheduling a Pipe Dream? DEA Questions Reliability of State-Run Programs and Impact on Transnational Crime
Often wrong, never in doubt. That’s our promise here at Budding Trends. A little over a year ago, we wrote these words: “DEA will reschedule marijuana from Schedule 1 to Schedule III.” We later acknowledged we (may have) jumped the gun on that and modified our prediction to be that rescheduling won’t happen in 2025. To be fair, that prediction is almost going to prove true but not exactly the way we meant it.
If you’d permit us to revise and extend our remarks (hopefully) just once more, there have been several recent developments, which could suggest that with the changing administration came a shifting of tides such that rescheduling marijuana has returned to an uncertain proposition.
Most notably, last week DEA released its 2025 National Drug Threat Assessment (NDTA) Report. That report of DEA’s actions and inactions related to the formal rescheduling process, coupled with other recent accusations noted here and here, points toward a DEA that will fight against rescheduling.
What’s the Report Say About Marijuana?
Robert Murphy, DEA’s acting administrator, states that the purpose of the report is to provide a “national-level perspective on the threats posed by deadly illicit drugs and the violent transnational criminal organizations (TCOs) responsible for producing the drugs poisoning our communities.” Given this purpose, it might surprise many readers that a decent sized section of the report is dedicated to marijuana, specifically marijuana that has been legalized. For context, the other drugs the DEA decided warranted a separate section in the report are fentanyl, nitazenes, xylazine, heroin, methamphetamine, and cocaine.
With respect to marijuana, the report states:
Cannabis growers in states where cultivation is legal (e.g., Oklahoma), particularly Chinese TCOs and Mexican cartels, are the main suppliers for the illicit marijuana markets in the rest of the United States.
Despite legalization, the “black market” for marijuana has expanded significantly during the last two decades as Chinese and other Asian TCOs have taken control of the marijuana trade.
Chinese TCOs are producing the “most potent form of marijuana in the history of drug trafficking,” with a THC content averaging 25% to 30%.
Even in states where marijuana has been legalized, THC levels are “largely unregulated.”
States that have legalized marijuana usually have the highest rates of marijuana use in the country, with increasing usage by vulnerable demographics.
Product labeling controls are insufficient, including for Delta-8 products, leading to an increase in injury due to unintentional exposure, particularly among children.
Notably – and if we’re being candid, frustratingly – the report does not include sources or citations for most of its sweeping assertions regarding marijuana, including its assertions regarding the interconnection between the legalization of marijuana and increased transnational crime and the suspect claims that legal markets don’t sufficiently regulate THC potency or product labeling. That said, the assertions are there.
Does the Report Spell Doom and Gloom or Is It DEA’s Way of Outlining What Safeguards Need to Be in Place?
One fair reading of the report is that DEA is all but guaranteed to oppose rescheduling, especially given the report’s repeated emphasis on the connection between state-run programs and both increased transnational crime and increased marijuana usage among vulnerable populations. A more glass-half-full reading could be that DEA is telling us, and the administrative law judge that will one day oversee the rescheduling hearings, what rulemaking it will insist be in place if marijuana is ultimately rescheduled.
The marijuana-specific concerns outlined in the report could foretell universal regulations that should apply to all legal markets, including:
Better tracking to avoid legally grown marijuana from entering illicit markets, especially through Chinese TCOs and Mexican cartels;
Refined implementation of THC potency caps;
Uniform product labeling requirements, including for Delta-8 products, to limit unintended exposure;
Uniform testing regulations across all legal markets; and
Regulation of hemp-derived products to ensure product labels are accurate and such products do not contain other cannabinoids, terpenes, or chemical contaminants that are not listed on the product label.
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