March 1 (Reuters) - A federal judge in Delaware on Friday upheld a law that requires some drugmakers to negotiate prices with the U.S government's Medicare health insurance program, rejecting a challenge by AstraZeneca to one of Democratic President Joe Biden's signature initiatives.

U.S. District Judge Colm Connolly's decision comes the day before the British drugmaker is due to respond to the U.S. government's initial bid for the price of its blockbuster diabetes drug Farxiga.

AstraZeneca said it was disappointed in the ruling and considering next steps. The U.S. Department of Health and Human Services (HHS) did not immediately respond to a request for comment.

The ruling marks the third time the Biden administration's program has survived a court challenge.

The negotiation program, passed as part of 2022's Inflation Reduction Act (IRA), allows the U.S. Centers for Medicare and Medicaid Service (CMS), which oversees Medicare, to negotiate prices for selected high-cost drugs. The agency announced 10 drugs in August that would be the first to be subject to the negotiations.

Drugmakers that refuse to participate must either pay heavy fines or withdraw altogether from Medicare, which covers 66 million Americans mostly aged 65 and older and accounts for a large share of U.S. prescription drug spending.

Manufacturers and industry groups filed lawsuits challenging the program on several grounds, including that it took away their property rights without due process, in violation of the U.S. Constitution.

Connolly, rejecting that argument, wrote on Friday that drugmakers are not "entitled to sell the government drugs at prices the government won't agree to pay."

"Understandably, drug manufacturers like AstraZeneca don't like the IRA," he wrote. "Lower prices mean lower profits. ... But AstraZeneca's 'desire' or even 'expectation' to sell its drugs to the government at the higher prices it once enjoyed does not create a protected property interest."

Other drugs chosen for the first round of negotiations include Bristol-Myers Squibb and Pfizer's blood thinner Eliquis, Merck & Co's diabetes drug Januvia and Johnson & Johnson's blood thinner Xarelto. The government's initial bids were not public.

A federal judge in Ohio last September

refused to block the law

in a case brought by the U.S. Chamber of Commerce, the nation's largest business lobbying group.

Another federal judge in Texas last month

dismissed a similar lawsuit

brought by the Pharmaceutical Research and Manufacturers of America (PhRMA), the largest U.S. drug industry lobbying group.

Connolly and the judges in the two previous decisions were all appointed by Republican presidents.

The cases are expected to reach federal appeals courts and possibly the

U.S. Supreme Court

.

If the price negotiations are allowed to go forward, the first negotiated prices would be set in September and go into effect in 2026, with more drugs added in future years. The IRA aims to save $25 billion annually by 2031.

Industry analysts

have said

that the negotiated discounts could be steep, ranging from the statutory minimum of 25% to as much as 60%. (Reporting by Brendan Pierson in New York; Editing by Alexander Smith, Alexia Garamfalvi and Leslie Adler)