California Governor Signs Law Barring Pay-for-Delay Agreements

Earlier this week, California Governor Gavin Newsom signed into law AB 824, which makes the state the first to bar pay-for-delay pharmaceutical agreements.

The bill prohibits these agreements between brand name and generic drug manufacturers by making them presumptively anticompetitive if the nonreference drug maker receives anything of value from the other company. The bill would make violating these provisions punishable by civil penalty.

Citing a Federal Trade Commission report that says that anticompetitive deals cost consumers and taxpayers $3.5 billion in higher drug costs every year, the state says that blocking the development of generic drug competition harms consumers and increases drug company profits.

Increased competition from generics and biosimilars breaks up drug monopolies and lowers pharmaceutical costs, the state says. California patients and state programs saved $26 billion in 2018 alone by using generic prescription drugs.

However, the Association of Accessible Medicines (AAM), which represents generic and biosimilar drug makers, claims the law will actually have the opposite effect.

“AB 824 will harm patients in California by denying them earlier access to affordable generic and biosimilar prescriptions drugs. Moreover, by attempting to regulate federal patents and transactions that occur wholly in other states, the law violates the US Constitution," according to a statement from Chip Davis, president and chief executive officer of AAM.

Earlier this year, the Biosimilars Council, a part of AAM, released a white paper that, while condemning abuses of the patent system that delay biosimilar competition, also warned against legislative overreach into regulating pay-for-delay deals, which the council characterizes as “pro-competitive.”

According to the council, the settlements related to brand-name adalimumab, for example, “provide for competition 11 years earlier than might otherwise be possible…if the manufacturers of biosimilars to Humira were not able to settle, competition could have been delayed until 2034.”

Legislative proposals to regulate agreements that end patent litigation, like the one enacted in California, could backfire, AAM fears. A ban on the agreements could create “a de facto prohibition on patent settlements,” which would “merely benefit companies investing in the creation of patent thickets” by “forcing competitors to slog through lengthy and expensive litigation with uncertain prospects of success.”