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Assemblymember Wood and Attorney General Becerra Announce Bill to Outlaw “Pay for Delay” Tactics of Drug Companies

For immediate release:

SACRAMENTO–Today, Assemblymember Jim Wood (D-Santa Rosa), partnering with California’s Attorney General Xavier Becerra, introduced AB 824 to stop pharmaceutical companies from pocketing billions in profits by using a “pay-for-delay” practice that results in an extension of their patents on brand name drugs beyond what Congress intended when it passed the Hatch-Waxman Act of 1984.

“Pay-for-delay” refers to a system in which a brand name drug manufacturer enters into a contract with a generic drug manufacturer which agrees to delay marketing a generic version of its drug in exchange for some benefit, most often a monetary payment.

Some brand name drug manufacturers have adopted this approach in order to stifle competition, violating the basic principles that govern the pharmaceutical patent system. When a brand name drug patent expires, prices should decrease as generic manufacturers enter the market, decreasing costs to patients and health insurance companies.

“It’s unfortunate that the egregious acts of some drug companies taint the entire industry,” said Wood. “The original purpose of the patent system established by the Hatch-Waxman Act was to allow drug companies to regain the funds they have invested in research, development and testing and to incentivize them to continue to innovate, not to reap billions beyond the patent expiration date. When drug companies use these quiet pay-for-delay agreements with generic drug manufacturers it hurts consumers twice – once by delaying the introduction of an equivalent generic drug that is almost always cheaper than the brand name and again by stifling additional competition when multiple generic companies begin producing even less expensive generic equivalents. This is just plain wrong.”

Generic drugs cost substantially less than brand name drugs, with discounts off the brand price averaging 20 percent when the first generics are manufactured to up to as much as 90 percent when multiple companies are producing generics. Generic manufacturers can produce these drugs less expensively because they do not have to invest in research, development and testing. According to the IMS Health Institute, generic drugs saved the U.S. health care system $1.67 trillion from 2007 to 2016.

As the various lawsuits have come to their conclusions, drug manufacturers may look for more creative ways to implement pay-for-delay tactics to increase their profits and delay the manufacture of lower cost generic drugs. The results of an FTC study concluded that these contracts led to $3.5 billion in additional costs for pharmaceutical drugs every year. This expense is directly passed on to consumers, health plans and government, and thus, taxpayers.

“Patients and consumers deserve to be free of unfair practices and price manipulation within the pharmaceutical industry,” said Attorney General Xavier Becerra. “This legislation is a crucial step in combating predatory pricing practices, like “pay-for-delay” schemes, by drug companies and in defending access to affordable care.”

“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,” said Wood. “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 health care, and this calculating practice makes it worse and we need to stop it.”