The US Federal Trade Commission (FTC) has reached a settlement resolving the commission's suit charging Cephalon, Inc. with illegally blocking generic competition to its blockbuster sleep-disorder drug Provigil (modafinil). The settlement requires that Teva Pharmaceutical Industries, Ltd., which acquired Cephalon in 2012, will make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers. The FTC announced the settlement in a press statement.

Some of these purchasers have settled related litigation and payments made by Teva in those or other actions can be credited against the FTC fund according to the terms of the stipulated order for equitable monetary relief. Any remaining funds will be paid to the US Treasury, according to the FTC statement..

Provigil is a prescription drug approved to treat excessive sleepiness in patients with sleep apnea, narcolepsy, and shift-work sleep disorder. In the year before generic entry, Provigil sales in the United States exceeded $1 billion.

The settlement stems from a 2008 FTC lawsuit, which charged that Cephalon unlawfully protected Provigil through a series of agreements with four generic drug manufacturers in late 2005 and early 2006. The FTC alleged that Cephalon sued the generic drug makers for patent infringement and later paid them over $300 million in total to drop their patent challenges and forgo marketing their generic products for six years, until April 2012.

This type of settlement, in which the generic drug firm agrees not to market its product for a period of time and the brand name drug manufacturer pays the generic— whether in monetary or non-monetary form – is commonly referred to as a “reverse-payment” patent settlement.

Under the stipulated order for permanent injunction, Teva is prohibited from engaging in certain types of reverse payment agreements. This provision is aimed primarily at the type of reverse payments that Cephalon used, that is, business transactions entered at the same time as the settlement that serve as a form of compensation. In this case, Cephalon agreed to pay the generics principally for active pharmaceutical ingredients and intellectual property, business deals the FTC said it was prepared to prove at trial made no economic sense for Cephalon except as payments not to compete.

The order bars Teva from entering into a business deal with a competitor within 30 days of, or expressly conditioned on, a patent litigation settlement that restricts that competitor's generic entry. This provision will not prevent Teva from entering into truly independent business transactions, and it preserves Teva's ability to enter other types of settlement agreements in which the value transferred is unlikely to present antitrust concerns, such as those providing payment for saved future litigation expenses (up to $7 million).

The prohibition also does not cover all possible forms of reverse payments that could raise antitrust concerns. For example, it does not cover a branded firm's grant of an exclusive license to the generic, though some exclusive licenses in effect amount to an agreement by the branded drug firm not to market an “authorized generic.” While such a promise can function as an anticompetitive reverse payment, it was not at issue in this case, according to the FTC statement.

Source: US Federal Trade Commission