Cephalon Settles With FTC Over Pay-to-Delay Deals

Cephalon has agreed to pay the federal government $1.2 billion to settle antitrust allegations that it illegally blocked competition to Provigil by paying generics makers to hold off on their versions of the blockbuster narcolepsy drug.

The settlement — the largest ever for the FTC — will be used to compensate drug wholesalers, pharmacies and insurers that overpaid because of the illegal arrangement, the Federal Trade Commission says.

During a briefing last week, FTC Chair Edith Ramirez declined to say how much Cephalon had earned through the ill-gotten gains, saying only that the $1.2 billion is “adequate and appropriate” to resolve the case. In the year before generic entry, Provigil sales in the U.S. exceeded $1 billion.

The proposed settlement stems from a 2008 lawsuit, FTC v. Cephalon, accusing Cephalon of protecting its Provigil monopoly through a series of agreements with Teva, Barr, Mylan and Ranbaxy in late 2005 and early 2006. According to court documents, Cephalon allegedly sued the four generics makers for patent infringement and then paid them a total of $300 million to drop their patent challenges and forgo marketing their products for six years, until April 2012.

The agreement would bar Teva, which bought Cephalon in 2012, from entering into a business deal with a competitor within 30 days of — or expressly conditioned on — a patent litigation settlement that restricts the competitor’s generic entry. The company may still enter settlement agreements that are unlikely to present antitrust concerns, such as those providing payment for saved future litigation expenses up to $7 million.

The FTC approved the settlement in a 5-0 vote. The unanimous vote shows continued bipartisan support among commissioners for the FTC’s position on pursuing patent settlement agreements that have reverse-payment features, says Jeffrey Brennan, former chief of the FTC’s Health Care Services and Products Division and now a partner at McDermott Will & Emery.

The settlement must still be approved by a federal judge. The case is set to go to trial June 1 in the U.S. District Court for the Eastern District of Pennsylvania. — Jonathon Shacat