California Reverse Payment Case Appealed by Generic Drug Group

A case challenging California’s new law barring pay-for-delay arrangements between brand-name and generic drugmakers is headed to the Ninth Circuit after the lobbying group for generic medication appealed.

Pay-for-delay or “reverse payment” agreements involve payments in cash or in kind from a brand-name drug patent holder to a generic drugmaker to end or avoid litigation. The payment often takes the form of an exclusive license or a promise not to compete in the eventual generic market. In exchange, the off-brand company agrees not to introduce its own version.

The Association for Accessible Medicines Dec. 31 lost a bid for an injunction to block the law in the U.S. District Court for the Eastern District of California. The group Jan. 2 filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit.

Judge Troy L. Nunley of the Eastern District wrote that the association failed to raise serious questions or “establish a likelihood of success on the merits of its claims.”

The group sought a preliminary injunction based on alleged violations of due process, the dormant commerce clause, and the excessive fines clause, as well as preemption by federal drug laws.

The Association for Accessible Medicines is again seeking an injunction to block California’s law, which declares any reverse payment is “presumed to have anti-competitive effects” under the state’s Cartwright Act.

The lobbying group argues that the California law will ultimately slow the entry of generic drugs to the market because reverse payment deals can have provisions for bringing a generic to the market later than originally intended—but often before the brand-name patent has expired.

“Increased competition from generic and biosimilar medicines breaks up brand-name drug monopolies and drives down the cost of prescription drugs,” said Jeff Francer, the association’s general counsel. “California patients and state programs saved $26 billion in 2018 alone by using generic medicines.”

“By attempting to regulate federal patents and transactions that occur wholly in other states, the law violates the Constitution,” he added.

The U.S. Supreme Court opened pay-for-delay deals to antitrust scrutiny in 2013’s FTC v. Actavis, which spawned dozens of class actions and enforcement cases.

However, that decision also held that reverse payment deals aren’t automatically presumed to be anticompetitive. Instead, the plaintiffs in such cases must show that the defendants are actually engaged in anticompetitive behavior on a case-by-case basis by imposing an unreasonable restraint of trade based on economic factors.

The new California policy, signed into law in October, departs from the precedent established in the Actavis case. The new law imposes fines of up to $20 million per violation.

The case is Ass’n for Accessible Meds. v. Becerra, E.D. Cal., No. 2:19-cv-02281-TLN-DB, notice of appeal filed 1/2/20.