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California Assembly Passes Generic-Drug Cost-Reduction Bill

By Eric Volkman - Sep 1, 2020 at 6:37PM

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The proposed law now goes to Gov. Gavin Newsom for his signature... or veto.

A bill aimed at reducing the prices of generic drugs in California has passed overwhelmingly in the lower house of the state's legislature, the Assembly. That approval, in which 50 lawmakers voted in favor of and only four against, was the latest effort by a state body to rein in the costs of a great many medications.

In its words, SB-852 "require[s] the California Health and Human Services Agency (CHHSA) to enter into partnerships, in consultation with other state departments as necessary to, among other things, increase patient access to affordable drugs."

Rows of pills arranged on a pharmacy shelf.

Image source: Getty Images.

The bill mandates that the CHHSA use these partnerships to help make or manufacture cheaper generics. It also directs it to study the possibility of having the state manufacture and sell its own drugs. If it goes that far, California would be a direct competitor to companies in the generics segment that includes sizable companies such as Teva Pharmaceuticals (TEVA 0.29%) and Mallinckrodt (MNK).

Both companies belong to a trade and lobbying consortium known as The Association for Accessible Medicines. On Tuesday, the Association's lead lobbyist, Brett Michelin, sounded a welcoming note about the news from California.

"Generic manufacturers are more than open to doing this kind of partnership," he said, in remarks quoted by the Los Angeles Times. "I think having a fair and open process to sell drugs and compete for customers is what the generic industry is very used to and comfortable with."

Investors in generics makers might be feeling somewhat less optimistic. Teva and Mallinckrodt both fell by more than 5% on Tuesday, in contrast to the gains of the broader stock market.

SB-852 now goes to Gov. Gavin Newsom. He has until Sept. 30 to either veto it, or sign it into law.

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
TEVA
$10.37 (0.29%) $0.03
Mallinckrodt Public Limited Company Stock Quote
Mallinckrodt Public Limited Company
MNK

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