CA Enacts First-in-the-Nation Law to Combat Pay-for-Delay Agreements that Inflate Drug Prices

SACRAMENTO, Oct. 8, 2019  California Attorney General Xavier Becerra and Assemblymember Jim Wood  welcomed the enactment of Assembly Bill 824 at a signing ceremony with Governor Gavin Newsom. Sponsored by the Attorney General, the new law combats illegal, secretive deals between pharmaceutical companies in which one drug company pays its competitor to delay the competitor’s research, production, or sale of a competing version of its drug. These collusive agreements, known as “pay-for-delay” agreements, stifle competition and hike the price patients pay for prescription medicines. AB 824 becomes the first state law in the nation to tackle pay-for-delay agreements.

“Intentionally restraining competition to inflate drug profits is illegal. Doing so when the life or well-being of our loved ones may lie in the balance is immoral,” said Attorney General Becerra. The enactment of AB 824 signals progress for Californians who have been at the mercy of drug companies and their sky-high pricing for prescription medicines. I applaud Assemblymember Wood and Governor Newsom for taking us a step closer to holding the pharmaceutical industry’s feet to the fire and deterring these collusive, illegal agreements.”

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“This self-interested practice of pay-for-delay results in a loss for patients who deserve access to less expensive drugs and for all of us who end up paying more for health care and, in turn, health care premiums,” said Assemblymember Jim Wood. “Affordability is a huge issue in health care, and we should be doing everything possible to contain costs.”

Pay-for-delay agreements are the product of lawsuits between a branded pharmaceutical company and a generic. In these cases, the branded company sues the generic for alleged patent infringement. The companies then settle the case out of court in a confidential agreement. As part of the agreement, the branded pharmaceutical company pays the generic company to keep its generic pharmaceutical off the market for a period of time. During this time, the branded pharmaceutical maker continues to charge consumers monopolistic, high prices for life-saving medications. These pay-for-delay arrangements are kept secret from the public through out-of-court settlements. A study published by the Federal Trade Commission in 2010 concluded that pay-for-delay agreements increase the cost of prescription drugs for consumers by at least $3.5 billion a year.

The new law, set to go into effect on January 1, 2020, would presume these agreements are anti-competitive and delay the entry of the generic drug into the marketplace. It would also limit the ability of drug companies to use attorney-client and common-interest legal privileges to withhold relevant evidence regarding the collusive agreements. AB 824 establishes a stronger platform to investigate and prosecute these illegal and harmful drug pricing practices.