Health Law Update

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As of January 1, 2025, parties to transactions involving pharmacies located in California may also need to file a written notice with the California Attorney General. Assembly Bill 853 (AB 853), codified at <a href="https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CORP&amp;division=3.&amp;title=1.&amp;part=14.&amp;chapter=&amp;article=" target="_blank" rel="noreferrer noopener">Part 14</a>&nbsp;to Division 3 of Title 1 of the California Corporations Code, requires parties to certain transactions involving retail grocery firms or retail drug firms (each as defined by AB 853) to file a notice with the California Attorney General 180 days in advance of the effective date of the acquisition. The statute’s stated purpose is to provide the California Attorney General with review authority over retail grocery store and retail drug firm transactions, but the scope of the law expands that oversight to other, unanticipated pharmacy transactions.

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For example, the law broadly defines “retail drug firms” to include “one or more businesses or establishments located within the state and is identified as a retail business or establishment in the North American Industry Classification System (NAICS) within the retail trade category 45611.” NAICS category 45611 essentially encompasses all pharmacies. This means that any person acquiring, directly or indirectly, any voting securities or assets of any type of pharmacy located in California could potentially need to file a written notice with the California Attorney General. This includes drug stores, brick-and-mortar pharmacies, institutional pharmacies, mail-order pharmacies and internet pharmacies (if located in California). Additionally, any indirect investment in voting securities of assets in any type of pharmacy business located in California is implicated by the notice requirement.

The triggering event for filing a notice with the California Attorney General is either 1) the acquisition of more than 20 retail drug firms, or 2) the filing of a notice of a merger or an acquisition to the Federal Trade Commission or the United States Department of Justice pursuant to the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). In other words, if an HSR filing is made for the transaction, the California Attorney General notice will be triggered no matter how many pharmacies are involved.

The California Attorney General has yet to issue any regulations implementing this new notice requirement or guidance documents clarifying how to submit a notice. However, the California Corporations Code<a href="#_ftn1" id="_ftnref1">[1]</a> does provide that the Attorney General may adopt regulations to:

Specify exemptions from the notice requirement for acquisitions that, by virtue of the size, business volume or number of employees, are unlikely to materially affect competitive markets in California

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Authorize the Attorney General to request additional materials

Authorize adjustments in the filing fee, based on the size of the transaction, subject to the maximum amount

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Accordingly, unless or until regulations or guidance are issued, firms investing in California pharmacy-related businesses and pharmacies should carefully assess the trigger events and notice requirements under this pharmacy transaction notice law. Increasingly, more states are including pharmacy transactions within the purview of <a href="https://www.bakerlaw.com/insights/prepare-to-be-under-the-microscope-transaction-review-laws-in-healthcare-and-private-equity-ma/" target="_blank" rel="noreferrer noopener">Transaction Review Laws in Healthcare and Private Equity M&amp;A</a>. Please reach out to any BakerHostetler team member for assistance.

(e)&nbsp;The Attorney General may use the notice, documents, and information disclosed under this section in a judicial action in state or federal court or an administrative action involving the merger or acquisition.

14703: If the Attorney General determines that they cannot complete an evaluation of the competitive effects of the acquisition before the parties intend to consummate the acquisition, the Attorney General may seek an order from the Superior Court of the County of Sacramento temporarily staying or preliminarily enjoining the acquisition for such time as is reasonably necessary for the Attorney General to complete the analysis.

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<a href="#_ftnref1" id="_ftn1">[1]</a> CA Corp Code § 14702.

California Pharmacies Put on Notice: California’s Pharmacy Transaction Notice Requirement