FTC Sues Cephalon For “Reverse Payment” Settlement
Yesterday, the FTC filed suit in the U.S. District Court for the District of Columbia against Cephalon arising from its settlement of patent cases relating to Provigil (but not against the generic drug manufacturers). According to the FTC press release:
According to the Commission’s complaint, … Cephalon entered into agreements with four generic drug manufacturers that each planned to sell a generic version of Provigil. Each of these companies had challenged the only remaining patent covering Provigil, one relating to the size of particles used in the product. The complaint charges that Cephalon was able to induce each of the generic companies to abandon its patent challenge and agree to refrain from selling a generic version of Provigil until 2012 by agreeing to pay the companies a total amount in excess of $200 million. In so doing, Cephalon achieved a result that assertion of its patent rights alone could not.…
The court action filed today concerns conduct by Cepahlon to prevent lower-cost generic competition to one of its key products, the branded prescription drug Provigil. Provigil is approved to treat excessive sleepiness in patients with sleep apnea, narcolepsy, and shift-work sleep disorder. With U.S. sales of Provigil totaling over $800 million in 2007, and accounting for more than 40 percent of Cephalon’s total sales, the prospect of generic competition was a major financial threat to the company, the complaint states. Generic entry can significantly reduce the sales of existing branded drugs, and Cephalon knew that it would profit by keeping lower-cost generic alternatives to Provigil off the market, the agency contends.
According to the Commission, by late 2005, generic competition to Provigil appeared imminent. Several years earlier, on the first day permitted by regulation, four companies – Teva Pharmaceuticals USA, Inc. (Teva), Ranbaxy Pharmaceuticals, Inc. (Ranbaxy), Mylan Pharmaceuticals Inc. (Mylan), and Barr Laboratories, Inc. (Barr) – submitted applications with the U.S. Food and Drug Administration (FDA) to market their own generic versions of Provigil. Each company had either designed around, or challenged the validity of, the only remaining patent on Provigil – a narrow formulation patent related to the size of the particles used in the product. Cephalon filed patent litigation against each of the generic companies. By late 2005, however, the patent litigation was still pending and Cephalon, the generic firms, and Wall Street analysts all expected generic Provigil entry in the near term.
Facing the prospect of billions of dollars in lost revenue, Cephalon entered into agreements through which it compensated each of the four generic companies to settle the patent litigation and agree to forgo generic entry until April 2012, the FTC alleges. These agreements contained payments to the generic companies totaling more than $200 million.
Caphalon released a statement:
Cephalon stands by the strength and validity of our PROVIGIL patents and the legal basis for these settlements. We are disappointed that the FTC has determined to challenge these agreements as we believe they fully comply with both the spirit and letter of the antitrust laws. As importantly, our settlements confer a meaningful benefit to U.S. consumers by providing for the entry of generic modafinil three years early. Cephalon is prepared to vigorously defend itself in this matter and expects to prevail.
The FTC’s complaint is available here. [Update: the case has been assigned to Judge Rosemary M. Collyer.]
Additional coverage is available via the WSJ Health Blog and CNN.
RSS Feed
