Cephalon, Inc. ("Cephalon") has agreed to a settlement with the Federal Trade Commission ("FTC"), pursuant to which it will pay $1.2 billion to reimburse purchasers of the narcolepsy drug, Provigil. In the suit, the FTC alleged that Cephalon paid generic drug companies "to hold off on launching their own version" of Provigil.1 This settlement comes after the Supreme Court's decision in FTC v. Actavis (133 S. Ct. 2223 (2013)), in which the Court held that pay-for-delay can result in violations of federal antitrust laws. Even more recently, the California Supreme Court determined that pay-for-delay cases can potentially violate state antitrust laws in In re. Cipro Cases I & II (2015 Cal. LEXIS 2486).
By paying generic producers, Cephalon, which was purchased by Teva Pharmaceuticals Ltd. ("Teva") in 2011, kept the price of Provigil high, causing consumers of the drug, as well as taxpayers, to experience increased costs. In what is called a "reverse payment," Cephalon paid $300 million to several generic producers so that they would delay bringing their drugs to the market.2 Edith Ramirez, chairwoman of the FTC, said that while companies have been creative in trying to get around antitrust laws, the FTC will continue fighting to protect consumers, especially those that require special healthcare treatment.3
The $1.2 billion settlement will be used to pay direct and final purchasers that were forced to buy Provigil instead of potential generic options.4 The tipping point pushing Cephalon to agree to a settlement may have been a recent holding "that the FTC could seek disgorgement of Cephalon's profits from Provigil between 2007 and 2012."5 The revenue that Cephalon earned from sales of Provigil represented nearly half of the company's entire revenue base.6
As part of the settlement, Teva agreed to no longer utilize reverse payments to delay generic drug production in the U.S. As Erik Gordon, a professor at the University of Michigan, explained, "the government wants more generics in the market, more quickly, in order to cut health care costs... Anyone doing anything to slow the flow of generics should expect trouble."7 The settlement marks the biggest in the history of the FTC, with the previous largest settlement being a $108 million agreement in 2010. The FTC hopes that such a large settlement will send a signal to other producers of brand name drugs that reverse payments to delay generic drug production may be a harmful business decision in the long run.8
This blog has previously discussed pay-for-delay cases and the negative impact such arrangements have on consumers in the health care industry. Generic drugs save U.S. health care consumers millions of dollars every year. Additionally, a 2010 FTC study found that pay-for-delay arrangements alone account for $3.5 billion in higher drug prices each year.
The legal team at SFMS has substantial experience litigating antitrust matters and is involved in a number of "pay-for-delay" cases. If you have any questions regarding this subject or this posting, please contact Valerie Chang (firstname.lastname@example.org) or Michael Ols (email@example.com). We can also be reached toll-free at (866) 540-5505.
Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is also an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.