Drugmaker Teva Pharmaceuticals has agreed to pay $1.2 billion to purchasers to settle allegations by the Federal Trade Commission that a company it acquired stalled generic versions of its popular sleep-disorder drug Provigil from entering the market.
The settlement, which still must be approved by a judge, is the first in an FTC case over so-called “pay-for-delay” since a U.S. Supreme Court decision in 2013 made it easier to challenge the tactic under federal antitrust law. In pay-for-delay cases, brand-name drugmakers pay settlements to generic drugmakers, in patent disputes, to keep cheaper generic drugs off the market.
The FTC had alleged that Cephalon sued four generic drug manufacturers for patent infringement, and then, in 2005 and 2006, collectively paid them more than $300 million to drop their patent challenges and keep their generics off the market for six years.
Teva, which purchased Cephalon in 2012, did not admit to any wrongdoing as part of the settlement and said in a statement: “We are pleased to have reached an agreement with the government. In relation to the consent decree, Teva believes it is the right path for our company, for the industry and for the patients we serve.”
As part of the settlement, Teva may not engage in certain types of pay-for-delay, also known as reverse payment. Specifically, the FTC alleged that Cephalon compensated the generic drugmakers in the form of business transactions, paying for pharmaceutical ingredients and intellectual property.
Teva agreed to put the $1.2 billion into an account to compensate purchasers, including drug wholesalers, pharmacies and insurers who allegedly overpaid because of the pay-for-delay deals. That money includes any damages or settlement reached in private lawsuits, such as a $512 million settlement reached in April in a similar class action lawsuit. Any money leftover will go to the government.
FTC Chairwoman Edith Ramirez on Thursday called it a “landmark settlement."
“My hope is this will cause companies that might have been thinking of entering into these deals to think twice,” Ramirez said.
In court documents, Cephalon had argued, among other things, that settlements that include delaying a generic drug's entry into the market help save on litigation costs and “play a particularly important role in the patent context because they foster innovation by enabling patentees to achieve certainty in their patent rights.”
The FTC, however, said in a statement Thursday that the settlement in this case “ensures that injured consumers are compensated and is likely to deter pharmaceutical companies from engaging in similar unlawful conduct.”
The settlement, in part signals that the FTC is going after pay-for-delay cases that involve compensation in the form of business transactions, not just direct payments, said Lisl Dunlop, a partner at the law firm Manatt, Phelps & Phillips in New York. Over the years, especially as antitrust scrutiny of pay-for-delay cases has gotten stronger, drugmakers have gotten more creative in the way they structure the deals, she said.
“What this case says is that the FTC can and will go after things that may not be obvious monetary reverse payments,” Dunlop said.
In this case, the judge decided in January that the FTC had presented sufficient evidence to show that “the side agreements between Cephalon and the generic defendants were a means of disguising payments for delay and/or inducing the generic defendants to stay off the market.”
She called that January decision the “death knell” for Cephalon in the case.
Also, it's significant that the FTC sought a settlement amount in this case meant to offset the money the drugmaker earned through allegedly illegal means – a remedy known as disgorgement, said Jeff Brennan, a partner at the law firm McDermott Will & Emery in Washington.
The five FTC commissioners have been somewhat split along party lines on when to use disgorgement in recent years, Brennan noted.
In April, the commissioners voted 3-2 to approve a separate settlement with Cardinal Health involving disgorgement, with the dissenters saying the FTC should reinstate a previous policy statement, which it withdrew in 2012, and which also set forth criteria to guide decisions about whether to pursue disgorgement in competition cases.
The commissioners, however, unanimously agreed on disgorgement in this settlement.
They also observed, in 2003, that disgorgement might be an appropriate remedy particularly in pay-for-delay cases.
The Cephalon case was scheduled to go to trial in federal court in Pennsylvania on Monday, at which point the judge may now make a decision on the settlement agreement.
