In another instance of a state trying to wag the federal government, California's attorney general and a state legislator unveiled legislation Wednesday to prohibit pay-for-delay, or reverse payment, settlements between brand drug companies and generics.
AB 824 would prohibit agreements in which a drug company transfers anything of value to delay a would-be competitor's research, marketing or sale of a follow-on version of its drug. It also would prevent brand and generic companies from using attorney-client and common-interest privileges to withhold relevant evidence regarding the agreements.
"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," Attorney General Xavier Becerra said.
Such patent settlements hurt 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," Assemblymember Jim Wood said. "This is just wrong."
Although Congress has considered similar bans on pay-for-delay settlements, California is the first to propose a state ban.
If AB 824 were to become law, it likely would face court challenges. In presuming that all pay-for-delay agreements are, on their face, anticompetitive, the bill defies a 2013 Supreme Court ruling in FTC v. Actavis Inc.
That 5-3 decision closed the door on a "quick look" approach that presumes all such agreements, which generally allow the competitor to enter the market before patent expiration, are unlawful. Instead, the high court said, the "reason of law" must be used to look at the details of a specific agreement to determine whether it is anticompetitive. (See BioWorld Today, June 18, 2013.)
"There may be justifications for reverse payment that are not the result of having sought or brought about anticompetitive consequences," Justice Stephen Breyer wrote in the majority opinion.
The California bill also ignores last year's Fourth Circuit ruling that struck down Maryland's law aimed at price gouging for generic drugs. In a split decision, the appellate court said the state law was unconstitutional because it directly regulated transactions that occurred outside Maryland. A California ban on pay-for-delay settlements would face the same constitutional question as it would regulate out-of-state agreements.
Although California isn't bound by Fourth Circuit decisions, the Supreme Court gave credence to the appellate court's ruling this week when it refused to hear Maryland's appeal.