Teva Settles Cephalon |Case with FTC for $1.2B

(CN) - Teva Pharmaceuticals will pay $1.2 billion to settle Federal Trade Commission charges that it unlawfully stymied generic competition to its sleep-disorder drug Provigil.

The settlement announced Thursday potentially brings to an end the agency's long-running litigation over the drug, which was filed against Cephalon, Provigil's developer, in May 2008. Cephalon was acquired by Teva Pharmaceuticals two years later.

It requires the drug maker to "make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, who overpaid because of Cephalon's illegal conduct," the agency said in a statement.

The agreement now needs the approval of U.S. District Judge Mitchell Goldberg, who has scheduled a hearing at the federal courthouse in Philadelphia on Monday to consider the proposal.

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 U.S. Treasury, the agency said.

In April, Teva Pharmaceuticals agreed to pay $512 million to settle related claims its Cephalon subsidiary bought out prospective generic drug makers to maintain the market dominance of Provigil.

As part of the current settlement, Teva also has agreed to a prohibition on the type of anticompetitive patent settlements that Cephalon used to artificially inflate the price of Provigil. Teva is the largest generic drug manufacturer in the world, and this prohibition applies to all of its U.S. operations.

"Today's landmark settlement is an important step in the FTC's ongoing effort to protect consumers from anticompetitive pay for delay settlements, which burden patients, American businesses, and taxpayers with billions of dollars in higher prescription drug costs," said FTC Chairwoman Edith Ramirez after the commission approved the deal by a 5-0 vote. "Requiring wrongdoers to give up their ill-gotten gains is an important deterrent."

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.

In its 2008 lawsuit, the FTC claimed Cephalon unlawfully protected its Provigil monopoly through a series of agreements with four generic drug manufacturers in late 2005 and early 2006.

The agency 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.

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 claimed, that 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, the agency said.

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