California Legislator Introduces Legislation Targeting Pay-For-Delay Tactics

A California legislator wants to make the state the first to bar “pay for delay” tactics used by drug companies to prevent competition, targeting both generics and biosimilars, in a move that would create the first piece of state law about this issue.

The legislation is endorsed by the state’s attorney general.

Jim Wood, a Democrat representing the 2nd California Assembly District, introduced AB 824 to stop what his office said are “collusive agreements that prevent cheaper generic drugs from the market.”

Pay-for-delay refers to brand name drug companies compensating generic or biosimilar drug companies to delay the entry of a new product into the marketplace.

The tactics have been criticized by FDA Commissioner Scott Gottlieb, who has noted that with biosimilars, the strategy has expanded to include rebate and contracting terms between manufacturers and pharmacy benefit managers to discourage biosimilar competition.

“When expensive brand name drug patents expire and the drug companies intentionally protect themselves from losing profits to generic manufacturers through these agreements, the only entities making a profit are the brand name drug manufacturer and the generic manufacturer—when all the generic manufacturer needs to do in order to make money is absolutely nothing,” Wood said in a statement. “Who loses? The patients who deserve access to less expensive drugs and all of us who end up paying more for health care and, in turn, health care premiums. Affordability is a huge issue in healthcare, and this calculating practice makes it worse and we need to stop it.”

California Attorney General Xavier Becerra cited studies from the Federal Trade Commission that consumers pay as much as 90% more because of these agreements. In a statement, he said the bill would presume these agreements are anticompetitive and that they delay entry of the generic drug. It would also prevent the companies from withholding relevant evidence regarding the agreements behind attorney-client and common-interest privileges.

Pay-for-delay agreements arise from settled lawsuits between 2 drug firms, in which 1 sues the other for alleged patent infringement. The companies then settle the case out of court in a confidential agreement. As part of the agreement, the drug company with the brand or originator product pays the other to keep the new competitor off the market for some specified amount of time. The out-of-court settlements are sealed and not available for public inspection.

The state bill is similar to legislation introduced in both houses of Congress.

In January, Senators Amy Klobuchar, D-Minnesota, and Chuck Grassley, R-Iowa, reintroduced bipartisan legislation aimed at bringing down prescription drug costs. The legislation, now titled “Preserve Access to Affordable Generics and Biosimilars Act,” was first introduced to Congress in January 2017, then titled “Preserve Access to Affordable Generics Act.” Since the original introduction of the bill, the aim has expanded to include prohibiting biologics manufacturers from compensating biosimilar developers to delay the entry of competitor products into the market.

In July 2018, Congressman John Sarbanes, D-Maryland, introduced the “Biosimilars Competition Act of 2018,” of which some key components were subsequently passed in September.

The California bill may be heard in committee on March 23.