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Governor Signs AB 824 to Prevent “Pay for Delay” Tactics of Drug Companies

For immediate release:

SACRAMENTO–Today, Governor Gavin Newsom signed AB 824 by Assemblymember Jim Wood (D-Santa Rosa) and sponsored by Attorney General Xavier Becerra, which will provide the tools the Attorney General needs to prevent brand name and generic pharmaceutical companies from pocketing billions in profits by using a “pay-for-delay” practice.

Pay-for-delay refers to a system in which a brand name drug manufacturer enters into a contract with a generic drug manufacturer which, in turn, agrees to delay marketing a generic version of its drug in exchange for something of value, often a monetary payment. Some brand name drug manufacturers have adopted this approach in order to stifle competition and keep drug prices higher for a longer period of time.

“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 that results when multiple generic companies begin producing even less expensive generic equivalents,” said Wood. “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.

“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 Xavier 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.”

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 a 2010 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.

“When brand name drug companies and generics engage in these self-interested agreements, the only entities that benefit are the brand name drug manufacturer and the generic manufacturer, especially when all the generic manufacturer needs to do 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 we should be doing everything possible to contain costs. This calculating practice makes it worse and this new law will help stop it.”