BMJ 2015;350:h2282 doi: 10.1136/bmj.h2282 (Published 28 April 2015)
Page 1 of 2
News
NEWS Generic drug firm settles claim that it was paid to stay out of market Owen Dyer Montreal
A big manufacturer of generic drugs has had to pay $512m (£340m; €470m) to settle a claim that it took payments in various guises from the drug company Cephalon in exchange for not producing a cheap generic version of the company’s best selling drug.
Teva was one of four generic drug makers named in an antitrust suit brought by a large group of bulk drug buyers, pharmacies, and US health insurance plans over an alleged scheme to avert generic competition for the sleep disorder drug modafinil (marketed in the United States as Provigil).1 The other manufacturers, Ranbaxy, Mylan, and Barr Pharmaceuticals, remain defendants in the suit. The same alleged scheme is the subject of a separate suit by the Federal Trade Commission against Cephalon, due to be heard in June. Provigil’s main patent expired in 2003, but the drug’s maker, Cephalon, still held minor patents related to particle size of the active ingredient. Generic manufacturers, including Teva, had prepared versions that skirted around these other patents by modifying the particle size. But Cephalon challenged them, claiming patent infringement.
Cephalon’s suit had little chance of success, the drug buyers alleged, but the court filing automatically triggered a 30 month hold on the Food and Drug Administration’s approval of generic rivals. Cephalon hoped meanwhile to switch patients from Provigil to Nuvigil, a successor modafinil drug with a new patent that would insulate it from generic competition. But the FDA’s approval of Nuvigil lagged, and by 2005 Cephalon faced imminent entry of the generic competitors. Generic makers were expected to swiftly capture almost the entire modafinil market, selling for as little as 5% of Provigil’s price.
At this point Cephalon reached an agreement with the generic makers in its patent infringement suit. The settlement was of a type that has become a specialty of the drug industry: a reverse payment settlement, sometimes called a pay to delay agreement, in which the patent holding plaintiff pays the defendant.
Critics, including the US government, have argued that this is monopolistic behavior that hurts the consumer by keeping prices artificially high beyond expiry of the patent. Cephalon’s agreement with the generic makers delayed the entry of their cheaper drugs by six years, until 2012. During that time sales of Provigil grew to over $1bn a year. All of the parties could earn more from such an agreement than they would have earned competing in the generic marketplace, For personal use only: See rights and reprints http://www.bmj.com/permissions
the lawsuits allege. Cephalon allegedly transferred about $200m in various guises to the generic makers, a fraction of the profits from a year’s sales of Provigil. The generic makers agreed to sell Cephalon their modafinil patents and to supply the active ingredient. These transactions were listed in the patent infringement settlement alongside their promise to delay market entry, not explicitly framed as a quid pro quo. But the Federal Trade Commission and bulk drug buying plaintiffs argued that Cephalon had no use for those patents and paid over the market rate for the supply agreements. Teva was potentially exposed on two fronts in the case. Now the world’s biggest generics maker, it acquired Cephalon in 2011. As Cephalon’s parent company, Teva was effectively accused of making anticompetitive payments to its own younger self. Teva’s settlement did not include an admission of wrongdoing, and the company made no comment on the case except to pronounce itself “pleased with the settlement.”
The evidence of anticompetitive intent was unusually strong for such an antitrust case, said Michael Carrier, an expert in intellectual property and antitrust law at Rutgers University, New Jersey. Evidence included statements made by a former Cephalon chief executive officer, Frank Baldino. “We were able to get six more years of patent protection. That’s $4bn in sales that no one expected,” Baldino told investors soon after the patent settlement.
But Carrier said that the case was no outlier. “My feeling is that it does represent a trend. The Supreme Court ruled in 2013 that the Federal Trade Commission could sue in these cases, and they have done in this case. The FTC have just won the right to seek disgorgement from Cephalon, a very serious penalty which claws back a large part of the profits made from a drug.” The Federal Trade Commission typically tries to reimburse consumers with money recovered in such cases through a special trust fund. Carrier said, “The industry is becoming more wary, and while this sort of deal making is still going on, we’re seeing less of the really egregious behavior, of the blatant cash payments for delay. But, of course, there are other ways to make anticompetitive agreements than in patent litigation settlements.” 1
Federal Trade Commission v Cephalon, Inc. https://www.ftc.gov/sites/default/files/ documents/cases/2008/02/080213complaint.pdf.
Cite this as: BMJ 2015;350:h2282 © BMJ Publishing Group Ltd 2015 Subscribe: http://www.bmj.com/subscribe
BMJ 2015;350:h2282 doi: 10.1136/bmj.h2282 (Published 28 April 2015)
Page 2 of 2
NEWS
For personal use only: See rights and reprints http://www.bmj.com/permissions
Subscribe: http://www.bmj.com/subscribe
Page 1 of 2
News
NEWS Generic drug firm settles claim that it was paid to stay out of market Owen Dyer Montreal
A big manufacturer of generic drugs has had to pay $512m (£340m; €470m) to settle a claim that it took payments in various guises from the drug company Cephalon in exchange for not producing a cheap generic version of the company’s best selling drug.
Teva was one of four generic drug makers named in an antitrust suit brought by a large group of bulk drug buyers, pharmacies, and US health insurance plans over an alleged scheme to avert generic competition for the sleep disorder drug modafinil (marketed in the United States as Provigil).1 The other manufacturers, Ranbaxy, Mylan, and Barr Pharmaceuticals, remain defendants in the suit. The same alleged scheme is the subject of a separate suit by the Federal Trade Commission against Cephalon, due to be heard in June. Provigil’s main patent expired in 2003, but the drug’s maker, Cephalon, still held minor patents related to particle size of the active ingredient. Generic manufacturers, including Teva, had prepared versions that skirted around these other patents by modifying the particle size. But Cephalon challenged them, claiming patent infringement.
Cephalon’s suit had little chance of success, the drug buyers alleged, but the court filing automatically triggered a 30 month hold on the Food and Drug Administration’s approval of generic rivals. Cephalon hoped meanwhile to switch patients from Provigil to Nuvigil, a successor modafinil drug with a new patent that would insulate it from generic competition. But the FDA’s approval of Nuvigil lagged, and by 2005 Cephalon faced imminent entry of the generic competitors. Generic makers were expected to swiftly capture almost the entire modafinil market, selling for as little as 5% of Provigil’s price.
At this point Cephalon reached an agreement with the generic makers in its patent infringement suit. The settlement was of a type that has become a specialty of the drug industry: a reverse payment settlement, sometimes called a pay to delay agreement, in which the patent holding plaintiff pays the defendant.
Critics, including the US government, have argued that this is monopolistic behavior that hurts the consumer by keeping prices artificially high beyond expiry of the patent. Cephalon’s agreement with the generic makers delayed the entry of their cheaper drugs by six years, until 2012. During that time sales of Provigil grew to over $1bn a year. All of the parties could earn more from such an agreement than they would have earned competing in the generic marketplace, For personal use only: See rights and reprints http://www.bmj.com/permissions
the lawsuits allege. Cephalon allegedly transferred about $200m in various guises to the generic makers, a fraction of the profits from a year’s sales of Provigil. The generic makers agreed to sell Cephalon their modafinil patents and to supply the active ingredient. These transactions were listed in the patent infringement settlement alongside their promise to delay market entry, not explicitly framed as a quid pro quo. But the Federal Trade Commission and bulk drug buying plaintiffs argued that Cephalon had no use for those patents and paid over the market rate for the supply agreements. Teva was potentially exposed on two fronts in the case. Now the world’s biggest generics maker, it acquired Cephalon in 2011. As Cephalon’s parent company, Teva was effectively accused of making anticompetitive payments to its own younger self. Teva’s settlement did not include an admission of wrongdoing, and the company made no comment on the case except to pronounce itself “pleased with the settlement.”
The evidence of anticompetitive intent was unusually strong for such an antitrust case, said Michael Carrier, an expert in intellectual property and antitrust law at Rutgers University, New Jersey. Evidence included statements made by a former Cephalon chief executive officer, Frank Baldino. “We were able to get six more years of patent protection. That’s $4bn in sales that no one expected,” Baldino told investors soon after the patent settlement.
But Carrier said that the case was no outlier. “My feeling is that it does represent a trend. The Supreme Court ruled in 2013 that the Federal Trade Commission could sue in these cases, and they have done in this case. The FTC have just won the right to seek disgorgement from Cephalon, a very serious penalty which claws back a large part of the profits made from a drug.” The Federal Trade Commission typically tries to reimburse consumers with money recovered in such cases through a special trust fund. Carrier said, “The industry is becoming more wary, and while this sort of deal making is still going on, we’re seeing less of the really egregious behavior, of the blatant cash payments for delay. But, of course, there are other ways to make anticompetitive agreements than in patent litigation settlements.” 1
Federal Trade Commission v Cephalon, Inc. https://www.ftc.gov/sites/default/files/ documents/cases/2008/02/080213complaint.pdf.
Cite this as: BMJ 2015;350:h2282 © BMJ Publishing Group Ltd 2015 Subscribe: http://www.bmj.com/subscribe
BMJ 2015;350:h2282 doi: 10.1136/bmj.h2282 (Published 28 April 2015)
Page 2 of 2
NEWS
For personal use only: See rights and reprints http://www.bmj.com/permissions
Subscribe: http://www.bmj.com/subscribe
