California Ban on ‘Pay to Delay’ Pharma Deals Survives First Challenge

(CN) — California’s ban on drug industry pay-for-delay deals remains intact after a Ninth Circuit panel ruled Friday that a pharmaceutical lobby lacked standing to challenge the landmark consumer-protection law.

The first-in-the-nation law outlaws a common industry practice known as “pay-for-delay” where large pharmaceutical companies pay or incentivize a competing company to keep cheaper generic drugs off the market. Critics say the backroom deals choke competition and spike prescription drug costs.

Shortly after the bill was signed last fall by Governor Gavin Newsom, a group representing generic drug manufacturers sued the state in federal court, claiming the law eliminates negotiating tools and forces companies to rely on costly litigation. A federal judge in Sacramento quickly denied the Association for Accessible Medicines’ request for temporary relief and the law went into effect at the beginning of the year.

On appeal, a Ninth Circuit panel ruled it wasn’t persuaded by the association’s argument that the law creates a “substantial risk” of injury to the drug makers it represents. The panel denied the appeal for lack of standing and directed the lower court to dismiss the case without prejudice.

“The association has not established standing based on a threat of imminent or ‘certainly impending’ prosecution,” the unpublished order states.

California Attorney General Xavier Becerra and the proponents defended the ban as being critical to the state’s effort to weed out shady industry practices and reduce drug costs.

“Today’s victory is a win for every family who has unfairly shouldered higher prices for life-saving medicine, simply because pharmaceutical companies staved off competition to pocket higher profits,” said Becerra in a statement. “Californians shouldn’t have to pay an arm and leg to afford a prescription, particularly amidst a public health crisis of historic proportions.”

Pay-for-delay agreements are a staple of the pharmaceutical industry and were largely exposed by a 2003 federal law which requires companies to file the agreements with federal regulators.

According to the Federal Trade Commission, the deals cost consumers $3.5 billion in drug costs annually. 

The law, Assembly Bill 824, was inspired in part by a California study that found the deals delayed the public release of generic options by an average of five years and forced consumers to pay up to 33 times more for the brand-name options. It cleared the Legislature with bipartisan support on the last week of the session and Newsom quickly signed it into law. To enforce the law, lawmakers granted the attorney general’s office the power to sue companies within four years of alleged violations.

In their bid to overturn AB 824, the association argued the statue violated the Commerce Clause as it could impact drug companies’ patent settlements completed outside California. It claimed the law would have a devastating impact on drug companies’ businesses models.

“It imposes crippling monetary penalties not just on the companies that settle pharmaceutical patent litigation in violation of its terms, but on all their employees and agents who assist in a settlement effort—from the C-suite to the mailroom clerk who dispatches the signed papers,” the association argued in court papers.

But the three-judge panel found the appellant couldn’t show its members face imminent or “concrete” injury.

“The members state that they ‘likely would expect to be forced to litigate every pending patent-infringement lawsuit to judgment,’ or that they “likely will stay [their] hand on many products and simply stay off the market until the relevant patents all expire. These declarations allege only ‘possiblefuture injury’ and do not establish a substantial risk of harm,” the panel concluded.

Responding by email, the association’s interim CEO and general counsel Jeffrey K. Francer said, “California’s law has made it more difficult for patients to access more affordable generic and biosimilar medicines.  We are examining the Ninth Circuit’s ruling and will take necessary action to bring more affordable medicines to patients.”

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