Bill to ban delays in generic drug access passes the Assembly

SACRAMENTO — A bill passed by the Assembly takes aim at a pharmaceutical industry practice some argue delays access to some lower-priced generic drugs. The bill is sponsored by Attorney General Xavier Becerra, whose office would play a major role in enforcing it.

AB 824 would bar so-called pay-to-delay schemes in which pharmaceutical companies sign anti-competitive legal settlements with generic drug makers. The bill’s author, Assemblyman Jim Wood, D-Santa Rosa, said such agreements delay the availability of lower cost generic versions, “causing overall health care costs to rise.”

“These generic manufacturers are getting paid to do absolutely nothing, while brand name companies continue to reap high profits,” Wood said in an email.

Pharmaceutical companies oppose the bill, arguing it would create a private right of action and change evidentiary standards for antitrust cases within the state. They also argue the measure could intrude on precedents around the intersection of patent and antitrust law.

The existence of these agreements comes from a quirk in the Hatch-Waxman Act. This 1984 federal law was written to lower drug prices and increase competition by speeding the entry of generic drugs to market after an initial patent expires.

In hearings, both sides say Hatch-Waxman has largely accomplished these goals. About 90% of prescriptions in the U.S. are for generic drugs while newer non-generic drugs represent about three-quarters of spending on prescriptions.

That law allows for a 180-day exclusive right to market a generic to the first company to file an application to market a generic after a drug patent expires. Legally speaking, this application is a claim that the patent is now invalid.

This situation can lead to private litigation and to the so-called pay-to-delay or reverse payment settlements. These can allow the original drug company to offer an exclusive right to market the drug that can last beyond the original 180-day limit, often in conjunction with some other type of payment of incentive. In some cases, the generic drugmaker agrees to not manufacture or market a competing drug.

AB 824 would address this situation by preventing the generic drug maker from receiving “anything of value” from the original manufacturer as part of the settlement, such as money or other incentives. It would also bar the generic drug maker from agreeing to limit research, development or sale of competing drugs.

The bill passed 44-0 with little floor debate. Several Democrats and all but one Republican abstained.

Pharmaceutical industry lobbyists have been working against AB 824. This includes the Association for Accessible Medicines, an organization representing generic drug manufacturers.

Brett Michelin, the group’s director of state government affairs, testified at an Assembly Health Committee hearing in March that these settlement agreements are key tools generic companies use to get drugs to market. He said “anticompetitive” or reverse payment settlements agreements are rare, but that by placing limits settlements would lead to more litigation and slower generic introduction.

“If these agreements truly are pro-competitive, then it shouldn’t be that difficult to prove,” Wood replied.