Teva Settles Cephalon Provigil Case for Record $1.2 Billion

Cephalon SettlementIn what has been a long drawn out legal battle, the FTC has recently announced that it has reached a settlement to resolve the FTC’s antitrust lawsuit against Cephalon, Inc., which was acquired in 2012 by Teva Pharmaceutical Industries, Ltd.  The record settlement, valued at approximately $1.2 billion, will make refunds available to purchasers, including drug wholesalers, pharmacies, and insurers, who overpaid for Cephalon’s sleep disorder drug Provigil.  In addition, under the terms of the settlement agreement, Teva has also agreed to a prohibition on the type of anticompetitive patent settlements that Cephalon used to artificially inflate the price of Provigil.

According to FTC Chairwoman Edith Ramirez, “[t]oday’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.  Requiring wrongdoers to give up their ill-gotten gains is an important deterrent.”  Turning to the issue of disgorgement, Ms. Ramirez concluded:

I want to sum up by saying that this settlement demonstrates the FTC’s ongoing commitment on behalf of consumers to ensure that America’s healthcare markets remain competitive, resulting in lower drug prices and greater innovation for consumers.  Let me also emphasize that the monetary payment in this case is important not only because pharmacies and other purchasers who overpaid for Provigil will get money back. Monetary relief is also a key tool in deterring companies from committing antitrust violations since it deprives wrongdoers of ill-gotten gains resulting from their illegal conduct. As this settlement clearly underscores, the FTC will not hesitate to use all of the remedies available to us to obtain meaningful relief for affected customers and ensure a level playing field for competitors.

The settlement comes after a nearly seven yearlong battle between Cephalon and the FTC.  The lawsuit, initiated in 2008, alleged that Cephalon was unlawfully protecting its Provigil monopoly through a series of agreements with four generic drug manufacturers commonly referred to in the pharmaceutical industry as “reverse-payment” patent settlement.  Under a reverse-payment agreement, the generic drug manufacturer agrees not to market its generic version of a drug for a period of time in exchange for monetary and non-monetary payments from the brand name drug manufacturer.

The FTC’s settlement with Teva represents the first FTC enforcement action to be resolved following the U.S. Supreme Court’s landmark decision in FTC v. Actavis in 2013.  In that case, the Supreme Court made clear that reverse payment patent settlements are subject to the same antitrust rules that govern U.S. business conduct generally.  The FTC and consumer protection groups have long criticized reverse-payment agreements as anticompetitive because the deals artificially delay the entry of cheaper generics into the market.  Testifying before Congress in the weeks after the Supreme Court’s 2013 decision, Ms. Ramirez said the FTC was empowered by the court’s ruling.  She said the number of potentially anticompetitive agreements between name brand and generic drug makers had ballooned, to 40 in 2012 from 28 in 2011 and none in 2004.  In addition to the Cephalon case, the commission is litigating two similar reverse-payment settlement cases, one against AbbVie and Teva and the other against Actavis.  Since 2013, the agency has also filed several briefs seeking to influence court decisions on related cases.

The $1.2 billion settlement reached with Teva is six times larger than the next-largest settlement in FTC history, which came in 2010 when Countrywide Financial agreed to pay $108 million during the mortgage crisis.  The FTC Commissioners voted unanimously to approve the record settlement, and in doing so, sent a clear message that anyone keeping the cost of healthcare artificially high will be under heavy scrutiny from the FTC.  Some believe that Teva decided to settle the charges after a Pennsylvania federal judge ruled that the FTC could seek disgorgement of Cephalon’s profits from Provigil between 2007 and 2012 if it prevailed on liability at trial.  Upon this ruling, Teva likely saw the writing on the wall and decided against taking the FTC to trial.  The FTC’s action against Teva and other brand name drug manufacturers shows just how crucial antitrust enforcement is to controlling healthcare costs in America.  Without the FTC’s enforcement, brand name drug manufacturers would be free to maintain artificially high prices for their drugs while paying off generic manufacturers to keep less expensive generic versions of the drug from coming to market for a number of years.

FTC vs. Cephalon