Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Cephalon compensates states, consumers $125M following pay-for-delay allegations, (Aug 5, 2016)

By Patricia K. Ruiz, J.D.

Cephalon and its parent company, Teva Pharmaceuticals, Ltd., reached a $125 million settlement with 48 states following allegations by the FTC that Cephalon protected its monopoly on the sleep disorder drug Provigil® under a pay-for-delay scheme, in which Cephalon paid generic drug makers to abandon their challenges to Cephalon’s patent.

Settlement terms. The settlement agreement would distribute $35 million to consumers who bought Provigil. In addition, Cephalon will pay $55 million in proprietary compensation to a settlement escrow account for disbursement to the states. Cephalon will also pay $35 million for state disgorgement, costs, and fees.

"All consumers deserve the advantages of a fair and competitive marketplace; efforts to impede competition within the generic drug market are a serious concern," commented Connecticut Attorney General George Jepsen. "Cephalon’s conduct to ‘pay-to-delay’ generic competition of Provigil, as well as their intentional efforts to defraud the government and consumers is unacceptable. I’m pleased that Connecticut’s Medicaid program will recover taxpayer funds expended and Connecticut consumers will be eligible for restitution through this settlement."

Pay-for-delay arrangement. Cephalon received a patent for Provigil, a drug used to treat sleep disorders, including sleep apnea and narcolepsy. On the earliest date possible, Teva, Ranbaxy Pharmaceuticals, Mylan Pharmaceuticals, and Barr Laboratories filed abbreviated new drug applications (ANDAs) for permission to market a generic version of the drug. Cephalon challenged the ANDAs and eventually paid the four companies more than $300 million through roughly 12 business transactions that occurred at the same time that it settled in its patent suits. Teva eventually acquired Cephalon.

The FTC and other entities sued Cephalon and the generic drug manufacturers alleging that the pay-for-delay arrangement was anticompetitive. A district court ruled that, because evidence demonstrated that the arrangement had anticompetitive effects, Cephalon, Teva, and other manufacturers must justify the payment as procompetitive.

Settlement agreement with FTC. Cephalon reached a settlement with the FTC, which was approved in June 2015. The court order barred Teva from entering into the type of reverse payments that Cephalon used to protect Provigil. In addition, the settlement prohibited agreements in which the branded drug manufacturer makes a monetary payment or otherwise compensates the settling generic and either makes that transfer of value expressly contingent on settlement of existing patent litigation, or the transfer occurs 30 days before or after the patent settlement. It was noted that certain arrangements are excluded from the ban, such as settlements without payments from the brand to the generic resulting in an entry date before patent expiration or settlements with payments reflecting reasonable avoided litigation costs.

Companies: Cephalon; Teva Pharmaceuticals, Ltd.; Ranbaxy Pharmaceuticals; Mylan Pharmaceuticals; Barr Laboratories

News: Antitrust